The Metals Industry Needs Digital Transformation – and Fast
The metals and mining industry has rarely been at the forefront of new technology adoption, when compared with industries like banking, healthcare, and media. Traditionally, competitive advantage in metals and mining has come from a company’s structural position on the cost curve. For a low-margin business, constant prioritization of short-term cost reduction can come at the expense of long-term strategic positioning. With the advent of new technologies, grouped together under the terms ‘Digital Transformation’ or ‘Industry 4.0,’ metal producers must carefully invest in the right tools and projects now, or be left behind by the competition.
There are a few key technologies that we are seeing have a tremendous impact, both short and long-term, in the metals industry:
Robotic Process Automation (RPA): the no-brainer for any business with repetitive processes and a need to cut costs, RPA has matured in the market and any manual process with routine keystrokes is ready to be automated. As labor costs grow, the cost of this technology is falling, with a short implementation timeline and minimal operational expenditure required.
Data Collection and Availability: where just a few years ago the cost of both collecting and storing data was extremely high for a low-margin business like metals, data storage is now cheap, and sources of data are vast. IoT-enabled sensors can be easily deployed to collect valuable data across the business, without fear of data storage costs. The estimated cost of data storage is about 2 percent of what it was 5 years ago, and falling, thanks to cloud technology. When properly utilized, this one of the business’ most valuable assets.
Artificial Intelligence and Analytics: Machine learning simplifies production processes and can enable manufacturers to predict quality outcomes. With sensors, not only can metals manufacturers monitor their machine performance to maximize uptime, but they can optimize other areas of the business, from materials sourcing to process adjustments. For example, by linking systems across multiple operations and operators, a company can segment their business data along key components, such as plants, product lines, and customers. Having reliable data, presented in a meaningful way, is an invaluable aid to C-suite executives that need to make confident and expedient decisions. In low-margin industries, getting the data right and making it available quickly is essential to staying competitive.
Mobile Technology: When you visit a metal manufacturer in 2020, don’t be surprised to still see meter readings being recorded on paper, or maintenance folks reviewing printouts to assess and execute a repair. This data rarely makes it into the ERP in a consistent and accurate way, nor does it allow employees in the field to make use of the data in the system. With mobile applications, employees can access everything they need from anywhere, and input directly into the ERP to allow for actionable insights and alerts. This has already led to enormous gains for metals companies that have invested, especially in mobile maintenance processes.
The proven value of these technologies in the metals business isn’t to be scoffed at. In a recent analysis, McKinsey found that “metal producers that harness the full potential of digital transformation can increase their EBITDA margins by up to 6 to 8 percentage points.” That’s a rare opportunity for an industry that is typically at the mercy of global prices and an unending struggle of cost-reduction.
The good news is, the impact of these technologies is catching the eye of metals industry leaders, but adoption needs to be well-planned, swift, and broad. The short-run opportunities, especially robotic process automation, can be brought in without significant restructure or buy-in, to achieve immediate gains. However, the most impactful transformation, capturing more than half of the potential gains from digital adoption, is in advanced analytics and artificial intelligence. Taking advantage of this technology is a long-term strategy, which requires proper data management authorities, process alignment, and properly integrated software solutions. As a general guide, any digital transformation effort should contain the following steps:
1. Use-Case Identification and Deployment: undertaking digital transformation will mean managing hundreds of potential use cases, with varying levels of impact. For metals manufacturers, it’s common to weigh the key factors such as feasibility, impact, data availability, problem ownership, and potential capex incurred. The best way to cut through the noise is to make a comparative assessment of various potential use cases to pick out both short term wins (low-hanging fruit) and long-term difference-makers (the largest potential impact).
2. Data Organization model & Employee Skills: Any business that takes data seriously, as all metals manufacturers should, needs to ensure they have employees with the right data-related skillsets, properly embedded within the organization, and given the authority to ensure their guidance is followed across the business. This means recruiting highly-sought-after data scientists (or developing current employee’s skills) and deciding on a model of data authority. There’s no “right” way to structure data authority, but the main options are:
a. Centralized model: all data and analytics resources reside in a Center of Excellence (CoE), who have ownership over data quality. This can bring about order quickly, but they typically struggle with communicating with business units that understand and create the data.
b. Federated model with CoE as enforcer: a strong central data team is responsible for data governance and sharing best practices, while allowing Business Units (BUs) to manage their own operational data with guidance from CoE.
c. Federated model with CoE as facilitator: in contrast with the above model, this gives BUs more responsibility over managing data assets, while the CoE is tasked with providing guidance, best practices, safeguards, and resources to help BUs share data with one another.
d. Decentralized model: this model gives BUs total responsibility for maintaining their data and governance, allowing them to implement improvements and correct mistakes quickly, but preventing the organization from establishing common standards and processes that unlock some of the gains.
3. Technology and Data Strategy: the current IT infrastructure at most metal manufacturers is a complex patchwork of legacy systems, customized and developed over time, and integrated (or not) with other systems from mergers and acquisitions. Most metal companies are producing and collecting a vast amount of data, but struggle to make that data available or usable when needed. When embarking on digital transformation, most metal companies are choosing to build a parallel architecture capable of handling any data management and analytics tools. This typically requires some IT & business decisions around cloud vs. on-prem, data warehouse or data lake, operational vs analytical MDM, and building vs. buying tools. Data is then gradually uploaded to the new environment based on initial use cases, usually leading to the development of a full live-data platform over the course of about 12 to 18 months.
Part of this process is determining data ownership, both governance and quality, and deploying a tool that gives that control to the determined owners. While many metals companies push data ownership to IT, there is a lot of value in putting data ownership in the hands of business units that understand and use the data.
4. Change Management and Leadership: The make or break step for 90% of digital projects is change management and employee adoption. Most digital transformation projects require process improvement to leverage new technology. Bringing on a new data quality management system, for example, requires redesigning the quality process to effectively use the tool. This kind of change will require training and support, because the new technology will only deliver full value if users know and like the new process. Getting this step right requires engaging end-users on the business side from an early stage, so that they can help shape the eventual solution and increase excitement and ease of adoption. Employees tend to adopt technology changes more eagerly than other transformations, especially if the change reduces their workload or improves user experience.
Why is this so urgent?
The reality of the metals & mining industry is that every company must perpetually struggle to keep costs as low as possible, while retaining or growing market share by being able to price competitively. This means that moving slow is no longer an option. This means that information about changes to trends in the business must reach the C-suite as quickly as possible, with a high degree of statistical confidence. Where once the difference-maker was having the newest equipment, the best mining and refining processes, or the richest mineral reserves, the industry must now turn its attention to removing the friction that exists within digital (or yet-to-be-digitized) processes.
A metal executive sits at her desk and wants to know how regions are performing relative to one another? If she has clean, properly centralized master data, she can have that information on her desktop in seconds. She’s seeing rising maintenance costs and increased downtime, but without robust asset data collection and an IoT platform to make sense of it, her ability to diagnose or improve the issue is close to zero. An executive wants to know whether they can safely increase production at a copper-ore concentrating mill, they can turn to AI to model the hypothetical situation using their actual data. A supplier’s prices suddenly shoot up, and the executive wants to analyze the pricing data to determine whether there is a need to shift to another supplier. All of this requires a company-wide commitment to digital transformation, and leveraging new technology, to accomplish.
Where can you start?
By partnering with Hamiltonian Systems, you benefit from the expertise and guidance of an industry-leader in manufacturing technology, with a track record of success, that is motivated first-and-foremost by lasting client success, not recurring service contracts. Hamiltonian Systems has helped metal and mining companies uncover opportunities for digital transformation; assess the impact, risk, and priorities; and develop a detailed strategy based on proven methodology as well as the client’s unique needs and goals. Hamiltonian Systems helps clients find or build the ideal software solutions, leveraging the latest technology to maximize the return on investment, ensure lasting success, and make end-users and executives alike eager for more digital transformation projects to come.