For mining companies, small improvements in yield, productivity, and utilization can have an extraordinary impact — amplified in a country like Indonesia, where mining contributes close to 5 percent of gross domestic product and 15 percent of exports.
The benefits of digitizing are abundant: Innovators with intelligent mining operations can raise margins by up to 20 percent. Technology advances can create more standardized processes — with consistently higher production levels — and improve worker safety.
But though successful case studies make the digital journey seem easy, companies attempting transformation face several common challenges. For sustainable benefits, changes need to go well beyond the technology: new skills and change management are equally crucial.
Industry 4.0 — such as advanced analytics, the internet of things, automation, machine learning, and robotics — has delivered significant savings in mining. Increased quantities of data, cheaper computing, and the spread of connected devices all make its benefits more available to businesses. Although Indonesia’s mining companies recognize Industry 4.0’s potential, most have moved toward it slowly.
A recent McKinsey study of Southeast Asian operators found that 80 percent had heard about the new technologies but almost 85 percent had not gone beyond pilots. Numerous large Indonesian companies are moving toward Industry 4.0, but many of them face difficulties in capturing the business impact and scaling up use cases. Low internet connectivity at mine sites, limited awareness of digital ecosystems, relatively few local reference cases, and a lack of digital skills also challenge success rates in Indonesia’s mining industry.
Some companies have transformed themselves by using digital technologies to integrate mining operations. Successful transformations have several common elements:
• Having a value-backed road map and commitment from the top. Top executives must understand, buy into, and model the digital vision. None of them can remain on the sidelines, and each C-suite leader is as important as the CEO and the chief digital officer in a digital transformation’s success. Executives must learn from experience and constantly — and rapidly — refine business cases and resource allocations.
• Creating the right foundations of scalable data. Getting better data is key to eliminating the unknowns of a digital transformation. Using data effectively at scale requires having the right data architecture built in a modular fashion and on a foundation of business requirements. Leading institutions build data-governance systems with data dictionaries and full lists of metadata into their architecture.
• Building new skills and talent. A digital transformation requires new skills, such as those of developers, data scientists, data engineers, and user-experience specialists. The competition to hire employees with such expertise is tough, and mining companies haven’t historically been their first choice, so the career path and value proposition must be clear for employees and outside experts alike.
• Collaboration between the business and technology teams. Although a digital transformation requires close collaboration between the business and technology teams, the latter often designs and leads the effort, with suboptimal involvement from the business team. This frequently leads to low levels of business acceptance at the implementation stage, or insufficient solutions to business problems. Tight collaboration and leadership across both teams are critical for successful digital transformation.
Companies that drive successful digital transformation reap several advantages.
First come the vast performance improvements, especially for line workers and supervisors in tough mining conditions. Digital technology can improve employee safety, provide operating transparency, and enable quicker decisions.
It also attracts a more diverse and talented workforce. Group leaders and supervisors can exchange realtime information about production, adjusted work plans, and emerging safety hazards to improve overall performance. Fatigue-monitoring devices can alert operators and supervisors when drivers need rest — before accidents occur. For one global mining company, these technologies raised shift productivity by more than 10 percent.
The second advantage is better handoff through increased transparency across the full value chain. Mining supply chains comprise interdependent systems from pit to port to market, so realtime transparency can enable better decision making and maximized margins. Technology and a single source of data truth across an entire company can help it rapidly tweak its plans and schedules to balance inventory needs, improve blending, and reduce demurrage costs.
Finally, data-driven insights from technology implementations can help leaders better understand their businesses. Mining companies generate a significant amount of data, but most use less than five percent of that data to capture real value. Leading companies are proving the value of harnessing existing data. For instance, several use advanced analytics to increase component lifetime, reduce inventory, and forecast bottlenecks. To improve recovery while reducing costs, companies apply similar analytics to key processing steps.
Mining has always involved dealing with uncertainty and variability. Today, these problems can be alleviated — and, in some cases, eliminated. By embracing technology-enabled operations, Indonesia’s mining industry can significantly improve its productivity, costs and the well-being of its workers. Mining companies that successfully navigate this shift today will win tomorrow.
Vivek Lath is a partner in McKinsey’s Singapore office, and Greg Peacocke is a partner in the Jakarta office.
Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.