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ERP IN MINING INDUSTRY � AN INDIAN MINING

PROSPECTIVE

By

Niraj Kumar

E-mail: nirajkumariitkgp@gmail.com

© 2002 Niraj Kumar. All right reserved.

ABSTRACT: Though concept of ERP is about one decade old and industries like

electronics , chemical, steel manufacturing, cement etc are fastly implementing concept

of ERP ,still mining industry is far behind. This paper is an attempt of conceptual

implementation of ERP in mining industry.

Key words: MINING, ERP, MRP, ENTERPRISE, INVENTORY MANAGEMENT,

SALES & DISTRIBUTION.

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Background - Human history is marked by measure changes for betterment of existing

facility, and making existing facility more efficient in every period. However attempt in

this direction has increased manifold in last few decades and particularly after the
invention of computers. Consequently, the first business activities to be computerized

were inventory control and purchasing. The need for software specifically designed for

manufacturing operations led to the development of MRP in the early 1970s and

subsequently to MRP II (manufacturing resource planning). But these systems failed,

which gave rise to the development of MES (Manufacturing execution systems). Then

came demand forecasting and DRP (distribution requirements planning), Which paved

the way for supply chain management. ERP encompasses both MES and supply chain

management capabilities to use new technological opportunities brought forth by the

internet.

Introduction: In this age of global technology, global trade and nature of

competition are changing at faster rate than ever. Fast and accurate information is the key

for success. In this scenario, companies have to protect their profits and remain

competitive in a crowded market and with sophisticated customers. Like any other

industry, mining industry can�t afford to far behind to these changes and ERP is a tool by

which chances of success increased considerably in these conditions.


To fully understand ERP and its implementation in mining industry, We need to

answer certain question like what is ERP, what is need of ERP in mining industry ,what

are benefits of ERP implementation and many more. So in next few section we try to

answer these questions one by one.

What is ERP?

ERP is acronym for enterprise resource planning. An enterprise is a group of

people with common objective of making profits. But traditional mining industry is

divided into a number of sections like Surveying, Production Planning, Production,

Material requirement, Sales and Distribution, Finance ,Humane Resource Development,

Machinery Maintenance etc which has very limited interaction with each other and in

many cases isolated with each other. So very limited data are available about a particular

department to other departments and top management. As a result, Instead of taking

organization towards a common goal, the various departments end up pulling it in

different directions. Sometimes objectives of different departments are conflicting. For


example, Sales department forecast higher demand for coal .To meet this demand

production department require new machinery, but Financial department wants to reduce

purchasing cost. These may lead to disruption of normal functioning of the organization.

But in ERP system , Data related with all the departments of the company are

stored in a central database, so that each department can access it and exactly able to

know what others are doing in no time. Why they are doing it and what are required to

move the company towards a common goal. The ERP system helps to accomplish this

task by integrating the information systems, enabling smooth and seamless flow of

information across departmental barriers, automating business process and function and

thus helping the organization to work and move forward as a single entity. Thus ERP

system able to improve efficiency of an enterprise drastically.

What is need of ERP in mining industry?

To apply any new technology or concept in any industry, We must first identify if

there is really a need for that and we can’t adopt a new thing only because others are

doing the same. Important point which identify needs of mining industry presently are

In this age of liberalization for survival, there is urgent need in mining industry to

operational excellence responding to the demand of customers for faster services

and lower cost compared to the competitors.

There is need to customer intimacy leading to a closer relationship to the customers

and integrate the customers into the company’s core process.

To ensure high quality or quality of mineral which is required by the customer.

In many cases, high grade ore are depleting and so we have to move towards lower

grade minerals ,whose economic mining is possible only by improved technology and

increasing operational efficiency.

Most of mining companies in our country are running into loss due to lack of

transparent and efficient management. so there is urgent need for increased

transparency at every level of the industry.

As gestation period is comparatively high in mining industry, there is urgent need in

reduction of these by increasing efficiency at all stages of (like exploration,

development etc). of mining.

Able to adopt new technology of mining in efficient way like telemining (which is
the use of current state. of art technology, including u/g communications,

Positioning, process engg., monitoring and control systems to operate mining

equipment and systems) ,computerized truck dispatch system, navigation systems

(which supply information accurate to, the millimeter on the size, shape and location

for all underground working) ,which can be used with a CAD like system showing

the mine’s workings in real time.

Able to use different mining software for exploration, reserve estimation, mine

planning, feasibility studies, operations and control and simulation work.

To harness the potential benefits of information technology and internet.

What are benefits of ERP implementation in mining industry?

ERP implementation in mining industry has both direct and indirect benefits. Direct

benefits are reduction in lead time ,greater transparency and fast data transfer,on time

shipment, reduction in cycle time, increased worker efficiency etc to name a few. While

some indirect benefits in terms of better customer goodwill ,helps in increasing customer

base.
Requirements of ERP implementation and problems in fulfilling these requirements

w.r. to mining industry

For successful ERP implementation support from all its users from lower level to

higher level is necessary. There is human nature to resist changes and chances of

elimination of jobs is also high. All these are big problems to deal with in developing

countries like ours.

In Indian mining industry, at lower level there is illiteracy and also tendency to

obstruct changes at higher level due to many factors. These are the measure obstructs in

ERP implementation.

Existing technology of mining, nature of business being done and hardware, software

and data base management systems infrastructure in the company is largely going to

influence the ERP implementation. However, most of the mines or mining

organization has very little infrastructure ,so it also creates problem in ERP

implementation.

A team of experts is required who can understand the problem of mining industry as
well as pros and cons of ERP, but at present our country is lacking in this area.

There must be willingness in high level of company and also people in management

must be motivator for successful ERP implementation. Excellent training facilities

and skills are required.

High cost of ERP implementation. so it is always required to do a cost – benefit

analysis, before actually going in for ERP implementation. Important cost involved

are:

*High training cost of worker’s and other employees.

*Cost in data conversion i.e. cost involved in converting data from traditional

system to ERP system.

*High testing cost.

*Other high cost in increasing infrastructure for ERP and using latest technology in

every operation.

Important Components of ERP system in mining industry:

Important components of ERP system in mining industry can be Finance


deptement, Surveying departement, Production planning, Production, Material

management, Sales and Distribution etc. Most significant thing about these modules are

information transfer is fully automated and beyond departmental barrier is possible in no

time. To understand it in better way let us take a very elementary example. Suppose a

small coal company receives a purchase order. In the non – ERP environment the order

entry clerk will enter the order details such as quantity of coal, quality of coal, address of

delivery etc. These order details are then passed on to the finished good coal storage

department, Where the in charge of the department checked if coal of required quantity

and quality are available or not. If coal are available, then distribution department load it

in trucks and send it to the customer. The accounts department of the company is also

notified, where bill will be prepared and sent to the customer. If coal is not in stock, then

through production planning department it will pass on to the production department

with time schedule for production and production department after checking with

materials management department if all materials such as explosives, drilling machines


etc are available and accordingly action is taken. Some machines may be not in working

condition and production might get delayed and help of machinery maintenance

department is required. Information transfer may take a week or even more.

However in an ERP system, these same activities will happen differently. As

soon as, the order entry clerk enters the order of coal into the system, the system

checks the inventory records and finds out whether coal are available or if the coal are

available, procedures are triggered automatically that will inform people in the sales and

distribution department and finance department. The information will contain the details

of coal to be shipped, the most economic route to the customer and so on. Also, the

system will trigger procedures in the financial modules so that bills are sent to the

customer. The information is transformed electronically through electronic data transfer

(EDT) and the payment are received electronically through electronic funds transfer

(EFT). If coal are not available, the production – planning module makes a production

schedule. Which is made available to the production, materials management and

machinery maintenance modules. So that everybody is prepared to start production as


per the production schedule. The materials requirement planning is done and any

material that is not in stock is ordered. The supplier is informed and associated processes

happen electronically. The machine maintenance gets the lists of machine required and

ensures that all of them are available. Thus, the production of 14 the coal goes on without

any hitches. An order entered into the ERP system by order entry clerk, triggers a whole

lot of procedures and automatically performs a host of functions. All these processes

take only a few minutes to complete.

After the order is received with a very short period of time, the coal are on their

way to the customer. If coal are not readily available, the customer is informed about it

and is given a delivery schedule. Other than the order entry clerk and people in the

distribution, production and maintenance departments, all the other tasks are done by the

system and that too automatically. In a Non – ERP environment, these tasks could take

days or even weeks to complete. since the ERP system stores all the data in a central

database and since the database is updated by all the modules on a real time basis, the
information available in the database is up – to – the minute. This integration of the

different business function and automation of the business processes and availability

(which is accurate and current) is what makes the ERP system capable of producing

dramatic improvements in productivity and profitability. Now take a look at various

components of ERP in mining industry briefly.

Finance Management Departement: As soon as the initial indication of minable ore is

found work of Financial module starts.From economic evaluation of the project to cost

benefit analysis to exploration, development and exploitation at every stage financial

module plays an active role. It links to all departments of organization from Material

requirement to production planning ,production and Sales and Distribution to HR and R

& D section. This module is also responsible for cost benefit analysis of each activity

within the organization and also all cash inflow and outflow is done via this departement.

Financial module of a mining enterprise should capable of dealing with special conditions

that exists in mining industry like its Exhaustibility, Remote location, need for heavy

investment in infrastructural facilities, Pollution control measures, Quality constraints,


Price fluctuation and particular country tax regime like royalty, dead rent taxation,

custom duty, corporate taxes etc as applicable to the mining industry.

Production planning and production. Department

Production is key to any mining industry. All other activities evolved around this.

The key concept in operations management is transformation, the conversion of

resources into minerals. Managing of production units starts with planning the total

production system. The planning process for mining operations is very complex and so

incorporating all information is not an easy task in any ERP module. In ideal ERP system

we prefer our production unit to be make to order rather than make – to- stock. However

even after using the latest technology of wining coal it is not possible to follow make – to

order philosophy.

A typical mine production planning module in close interaction with

surveying department and data available from exploration, development etc should able

to do geostatistical analysis so that to estimate the quality, quantity with higher accuracy.
It should also responsible for design of workings, equipment selection and able to give

exact time schedule for production.

A typical mine production planning module has following subsystems:

Geostatistical analysis of available data


Working design of mine production


Selection of equipments for production


Ventilation planning in case of U/G mine


Production scheduling

Plan transportation system inside the mine


Inform maintenance department about maintenance of machineries


Inform material management department about requirement of materials.


Give update information to quality control department about expected quality of

coal.

After getting production schedule from production planning department

production department starts working. This module should able to ensure that all

provisions of Act, regulation etc are followed strictly and safety should given top priority.

Its important work should be


Remove overburden in case of open cast mine


Win coal

Monitor wining coal , Monitor O/B Removal


Assists in optimum inventory


Responsible for adequent ventilation ,roof support in case of U/G mine


Responsible for drainage of water from mine


Responsible for power supply to the mine


Give information about exact quality and quantity of coal supplied to sales and

distribution department.

Estimation of life of various equipment and machineries.


Responsible for transportation of minerals from mine to storage

Human Resource Management Department

Even today in our country mining industry is largely a manpower

driven industry as many units of mining industry like development ,drilling etc lack

proper advancement. Also there is large scale illiteracy at lower level and largely labour

force in our mining industry is in grip wine, tobacco and worst of all heavy loan taken by

them from private money lenders. Also safety ,health and proper understanding of mine
plans and Act, Rules, Byelaws and Regulations are necessary for efficient functioning of

mining industry. All these factors placed a heavy burden on HR management department

in mining industry. So HR module of ERP is capable of dealing with all these problems.

Apart from that HR management is responsible for new recruitments, Training of existing

as well as new manpower ,small health care provisions for its employees, maintain the

profile of each members of the organization so that management is able to choose best

among them for any specific work. It should also responsible for spreading safety related

propaganda among workers and arranged meeting, outings, foreign trips etc for the

organization. It must also study behavior of the manpower against any specific cause and

able to record absentees, work schedule etc of any particular employee.

Machinery Maintenance Department

Machineries are heart of any mining industry. Any mining industry can’t achieve

excellence with unreliable equipment. In ERP system our target is to obtain quick

response production and elimination of wasteful production practices. In these


circumstances, machine breakdown and idle time for repair are not acceptable.

Any mining industry has a number of heavy and small machineries like Shovel, Dumper,

Loader, SDL, pump for water drainage ,Winding engine, Various types of fan for

ventilation, ome crushing and grinding plant in case of Metal mines, Gate end box etc.

Successful performance of all these machineries under mining condition is vital for

profitable mining. Operations of machinery maintenance department can be classified in

four measure categories:

Maintaining a database about machineries with name of supplier, date of supply,

guarantee/warranty period, price, type, efficiency, case history of the equipment.

Maintaining the case history helps in future decision making about machinery,

deciding about maintenance schedule etc.

Reliability study of all machineries under specific condition and based on that

suggesting a maintenance schedule , precaution required during operation,

maintenance required and active life time of equipment estimation and suggesting

means to improve reliability of a particular machinery or system.


This department should also help the management in selection of machineries under

given condition by some scientific or engineering method like partial ranking method

or multiple attributes decision making system etc.

Regular supervision of machineries, planning maintenance schedule and doing

maintenance work within the stipulated period ,so that chances of machinery failure

during production hour is minimal or negligible.

Materials management Department: Wide range of materials are required for

mining ,from components of different machineries to explosives, support system to any

other materials required for proper functioning of any organization. Materials

management department has various constraints like availability of space , EOQ etc and

within these constraints our target is to minimize cycle time and overall cost. Also for

each it should calculate economic order quantity and accordingly order should be placed .

Quality Management : It is unfortunate part of mining industry that we have no control

over quality of minerals. However, the quality of ores may be different at different

mines or sections in the same mine and by proper mixing the minerals, we can improve

the quality or supply the mineral of desired quality. Also quality department can ensure
the washing or processing of minerals if required and improve the quality of mineral

supply and take advantage over its competitor. The quality management priorities shift

from production planning to production and sales and distribution as well as listening to

complain of customers about quality of minerals.

Quality management department of a mining enterprise should have following

components:

Planning the production and after production activities in such a way so as t6o deliver

best possible quality to customer

Inspection of the quality of minerals at various stages after the production and before

the delivery

Controlling the quality and suggesting some washing etc if required

Sales and Distribution:

With today’s bossiness environment characterized by growing competition,

shrinking cycle times and accelerating pace of technological innovation, it is no longer

enough for any mining company to have good mineral quality and enough quantity, but
focus should now on core competencies and closer partnerships over the whole supply

chain. Customers want higher quality of mineral and shrinking lead time. To cope with

this ,mining companies should make a sales and distribution model, which is customer

centric. In mining industry mostly contract handling is the standard practice. Contract is

nothing but agreement with customer. So this require that company must retain the

current customer base at the same time try to expand the existing customer base by closer

interaction with customers like mail campaign. It may led to success or failure. In case of

success , customer do enquiry about the minerals etc and finally orders from cont6ract is

obtained and delivery is scheduled. So sales and distribution component of an ERP

system should have following ingredients:

Sales and distribution should have a database with information about total reserves,

quality of minerals, production rate, Detailed information about customers, materials

required by company and its supplier. With detailed information about how much

quantity ,quality of mineral is send to which customer with their cost, date and time

of delivery, so that all these information are available on time to decision makers of
the company.

Making an efficient inventory planning, maintaining mineral stock on the basis of

reliable forecast and projecting delivery schedule.

Transportation and shipping-Choosing and maintaining most efficient and economic

route to customer as well as ensuring proper supply of material to the company and

assigning these by using efficient assignment and scheduling algorithms.

Finally combining all these to obtain result closer to J.I.T. philosophy and to

minimize overall cost. Now take a look on the logical view of sales and distribution

system in a modern mine enterprise.

Apart from all these while practical implementation of

ERP in mining industry cost benefit analysis , project planning and its implementation in

phased manner ,end user training and always adaptability with new technology is

required.

Conclusion – Based on the above discussions following conclusions can be drawn:

ERP system can help mining company increase its market reach with faster rate ,
improved production and distribution ,processed and more personalized interaction

with customer.

This enables the mining company to have its executive times becoming available for

better and more productive causes, elimination of unproductive works, improved

decision making due to availability of timely and appropriate information.

In Indian mining industry due to lack of understanding by mine managers that

benefits of any computerization project can be derived only after successful

implementation of the system. So to take benefits of ERP system, managers need to

shade off conventional management style, co-oporate for changes at corporate ,

operational lend during implementation. Otherwise chances of ERP Implementations

are very dim.

For getting better results of ERP Implementation, mining industry needs

technological advancement in development, exploitation etc. So mining production

unit should move towards automation.

With increasing base of internet and expected increase in E- commerce, it is


expected that except in production, all other units of mining industry going to adopt

ERP system in near future.

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