Lean Production implementation always begins with a “top-down” approach, because it is the simplest and the most straightforward.

Stanislav Ploshchenko, Deputy CEO for Business Efficiency, East Mining Company (EMCO), Sakhalin Island, Russia

Today, when the mining industry is plagued by unstable demand, volatile prices and the growing cost base, operational efficiency comes to the fore of the management’s tasks. This is even more important for the coal industry as its access to project funding becomes increasingly constrained by the environmental policies of the international banks. That means in turn that coal companies cannot compensate their dwindling margins by volume growth as much as in the past. On the other hand, the current methods of labour organization and digital solutions offer a wide range of instruments, which – if properly applied – enable a coal company to leave its competitors far behind. However, that requires not only the diligent application of those technologies, but a total change in the operational philosophy on the shop floor, and especially among the engineers and technicians – middle management. A true change in their mentality is needed.

In this case study, I review the successful application of this approach at the East Mining Company (EMCO) – one of the most dynamically developing coal projects in Russia and the Far East – which fetched 14 million dollars of additional EBITDA in just over 1 year.

Company overview: EMCO is engaged in energy coal mining on Sakhalin island in the Sea of Okhotsk. The company’s reserve base is ca. 300m tons. It exports almost 100% of its production to the Asia-Pacific region through its own port of Shakhtersk, which is 28 km from the mine. The coal is extracted by open cast mining. Production stood at 11m tons in 2020. The company’s main projects are the construction of a 23-km conveyor belt to connect the mine with the port – the longest in Russia to date – and the modernization of the port infrastructure to increase its throughput capacity to 20m tons annually.  

EMCO, like many coal companies, was surfing the crest of the wave in 2017-2019 due to the exceptionally good market, which coincided with the company’s most dynamic period of growth as mining volumes nearly tripled from 4 million tons in 2016 to 11 million tons today in line with the shareholders’ plan to increase volumes to 20 million tons a year. The volumes growth went hand in hand with an increase in the stripping ratio, which is normal for a ramp-up phase, but that meant that the production costs also rose.

This is justified in the growth stage if the margins are positive: every additional ton delivers extra profits to the shareholders. However, it became clear in 2019 that the project’s sky-high development tempo was slowing down while market prices were stabilizing.

As the company’s former CFO, I therefore persuaded the shareholders and the management to shift focus and concentrate on the business’s operational efficiency. As a result, I was charged with heading a new task force specially created to implement these ideas.

The launchpad for improving the operational efficiency in every business is the implementation of Toyota Business Systems (TBS), which is broadly based on two pillars: eliminating unnecessary operations and minimizing equipment downtime.

These principles have spawned a wide range of instruments: Total Productive Management (TPM), SMED, 5S – the whole array of these methods and instruments is known collectively as Lean Production.

Lean Production implementation always begins with a “top-down” approach, because it is the simplest and the most straightforward. Key inefficiencies are spotted very quickly due to the “low base” or the “low hanging fruits” effect. All management has to do is to find the instruments to eliminate them and implement the incentive structure to stabilize the result. I give several examples below, each related to a basic principle of Lean Production.   

  1. Maximizing capacity utilization. A good example is the loading procedures of dump trucks. The BELAZ 75306 can carry 220 tons, the Komatsu HD785 – 90 tons. Weight sensors on the truck suspension enables APCS to read the current load in the truck. This information flashes up on the shovel operator’s panel screen in real-time.

    The key here is the operator’s motivation. Usually, the operator thinks that the sooner he can release the truck, the more he can load during his shift, especially if there is a queue of trucks. But that is wrong. The operator creates value only when he is loading. Ideally, he should not stop at all, for example when loading onto a conveyor belt. Therefore, the more distant the end operations are from each other – truck departing or truck positioning under the shovel – the higher the productivity. That means that management has to make the operator maximize the loaded weight. But care is also needed here to prevent going to the other extreme: systematic overloading will eventually affect the running gear and all the achieved efficiency will be cancelled out by increased stoppages for repairs.

    In our case, we solved this conundrum by choosing the right KPI, which was based on the APCS data, and limited the target loading range both from the up- and the downside, allowing a 5-7% variation in both directions. An important part of the KPI was eliminating the possibility to compensate and underload with a subsequent overload – every time the range is missed, the operator’s monthly bonus is reduced.

    The result was amazing. In the first month, truck loading increased by 10%.

    What does that mean in money terms? It is easy to calculate for a coal company: the additionally displaced overburden1 is divided by the stripping ratio to arrive at the additional coal that has been mined as a result of this new approach. This incremental tonnage is then multiplied by the operational margin.

    In our case we achieved extra $5m in operating profit just from stabilizing this effect on three 22m3 shovels. It is worth noting that such an incentive makes the operators stick more rigorously to the optimal loading sequence: placing every shovel load in a particular part of the truck instead of dumping it all in the center (which is easier). This also limits the overspills, which decreases the need for the dozer to clean up the loading area afterwards. This in turn also means additional savings in fuel consumption and a positive effect on the excavator’s downtime.       
  2. Parallel processes where possible. A working shift consists of a long sequence of organizational, operational and technical downtime. It is management’s task to eliminate these stoppages where possible – but if the technological process means they cannot be eliminated altogether, management has to ensure that the stoppages occur at the same time and not consecutively.

    Take, for example, a diesel excavator and a dump truck, which are refueled once during a 12-hour shift. The refueling time for an excavator varies between 15 and 25 minutes, depending on its shovel size.

    This stoppage cannot be excluded – but nor can stoppages for shift changes, which can last from 15 to 30 minutes due to the handover of the machine to the new operator along with an inspection between shifts. Lunch breaks last 30 minutes, a statutory time fixed by labour legislation, although as we see below, they can be further circumvented.

    The first and most obvious approach is to combine refueling with either a shift change or a lunch break. As a result, we were able to eliminate 25 minutes downtime per shift, which is roughly equal to loading five 220-ton dump trucks with a 22m3 shovel. This gives an extra 1,100m3 of overburden per shift, which equals 800 000m3 per annum.

    With a stripping ratio of 10 that results in an additional 80,000 tons of coal every year just by simply combining essential processes. And that is just for 1 shovel!

    It is also possible to combine the lunch breaks and refueling the dump trucks with the lunch of the excavator which they are servicing since as a rule their refueling does not require the driver’s participation. 

    Another example: during the winter in both Russia and North America, it is common that crushed rock and mud get stuck to the excavator’s chassis and freeze up, especially in operations where a lot of water is present on the ground. Operators may then need to spend between 20 and 40 minutes cleaning off all the gunk on every shift. If the chassis is thoroughly frozen up, one man cannot do all the work and a team has to be brought in.

    Experience demonstrates that this job gets done only when its necessity becomes obvious, that is when the track begins to skid. It is not difficult to deduce that such an approach damages the chassis – it is like treating a disease when the symptoms are already raging. It is far more practical to clean the chassis regularly, combine the cleaning with a shift change or a lunch break, and allocate a task force to the job. Strange as it sounds, the whole process then becomes less time consuming.

    By eliminating this stoppage, the company not only saves on repairs down the line, but also gets another 30,000 to 50,000 tons of coal per annum immediately.

    The port provides another example of a similar approach. Coal absorbs water if it is stored under the open sky when it has been snowing and raining for a long time. If it is then loaded onto the ship in wet weather, the hoppers and transfer points on the transhippers2 often end up blocked.

    After analyzing the operations, we found that when one of the hoppers is jammed, the entire ship-loading conveyor system grinds to a halt, along with the cranes. The personnel then begins the long and tedious work of cleaning up the blockage, starting from the most problematic area, then moving on to check all the hoppers and transfer points one by one. One stoppage can last up to 12 hours. At a daily loading rate of 37,000 tons, that is a loss of almost 19,000 tons in just one day.

    Even worse, this is not only coal which cannot be sold. These kinds of stoppages can also result in significant demurrage.3

    As usual, the solution is very simple. The four cranes of the transhipper unload 1 or 2 barges moored to the ship simultaneously, depending on weather conditions. One unloading cycle is 2-3 hours. Cast-off and mooring operations take another hour. That hour is enough for the men on deck to examine all the hoppers and transfer points and clean up the early signs of the problem without waiting for them to get worse. All in one go – not one after the other. All that is needed is to organize the personnel and equip them with the basic cleaning tools. Giving extra pay for that work cannot compare with the money lost from a 12-hour stoppage.

    Implementing this elementary procedure gave us zero stoppages in the last 6 months of 2020 and increased the transshipment volumes by over 30% compared to 2019.

    Even more encouraging, this approach not only results in an increase in EBITDA. It is also a way of increasing EBITDA itself because the coal not loaded for shipment means that the Cost of Goods Sold (COGS) incurred in extracting the coal just end up lying in stock in the port until the next navigation cycle begins.
  3. Minimizing downtime. In certain cases, downtime which apparently cannot be eliminated at first sight can be fully excluded. A good example is the clever combination of the shovel operator and his assistant. The operating technology of an electric excavator requires that an assistant must be present at all times. His task is mainly to take care of the electric equipment: connecting the cable to the grid after a displacement, cable repair and the like. Teaching the assistant to operate the shovel or hiring a slightly more qualified assistant to take over from the operator is not a huge expense. But that enables the company to eliminate the lunch break! This results in a 30-minute reduction to the downtime during the shift. In our example, that adds another 120 million tons of coal a year from just one 22m3 shovel.

    That, however, only works when the lunch break for the truck drivers is simultaneously excluded so that the whole process keeps flowing. That in turn can be achieved by having a team of shift-drivers.

    It is worth mentioning here that this does not mean hiring additional staff. More than often, the truck pool has drivers-locksmiths doing the repairs. Besides, in a large truck pool there are always 1-2 trucks in reserve. It is more than enough to have 1 shift-driver for 1 mining unit consisting of 1 shovel and 5-6 dump trucks. All that is needed is to put a mobile canteen alongside the road to the dump where drivers can change. The change takes 1 minute. While the main driver is having lunch, the shift-driver does at least 1 trip and then replaces the next one. It is however important to cascade the drivers’ lunch breaks, but that is not hard: 6 truck lunch breaks will take just over 3 hours.     
  4. Standardizing operations. An excellent example is changing the dump truck tires. At first glance, this is a very standard day-to-day operation if there are more than 30-40 trucks in the truck pool. But it is surprising just how disorganized the process can become, and not just because simple and inexpensive tools are unavailable, such as hydraulic jacks, electric or pneumatic wrenches, compressors or hydraulic shim extractors. Every process which combines a certain number of operations also includes at least the same number of stoppages plus excessive downtime where the operations can actually be combined together (see p. 2 above). For example, deflating a tire in order to remove the entire wheel after the pressure has fallen below 3-4 atmospheres can be combined with loosening the shim nuts. Pumping grease into the wheel gear can be combined with cleaning and replacing the damaged shims (with the addition of only one locksmith).

    But the key thing here is that we are dealing with a technological process that is repeated and contains a finite number of operations. That means that every operation can be defined in terms of the necessary instruments, personnel and sequence of actions, including other problems that could arise if something does not go as expected.

    On top of that, every consecutive operation should be prepared before the previous one has been completed. For instance, when the shim removal is drawing to an end, the mobile tire manipulator should already be waiting alongside rather than at the other end of the workshop pulling the wheel of another truck – ensuring that the right people and the right equipment are in the right place at the right time is the task of the shift technician.

    At EMCO, the downtime when changing tires on a 220-ton dump truck often used to exceed 30 hours! After standardizing operations and the equipment, and acquiring the basic set of tools for the job, we managed to reduce the downtime to just 6.3 hours in a couple of months!

    What does that mean in numbers? The dump truck does one trip in half an hour. That is 220 tons or 90m3 of overburden. Taking the whole company’s truck pool (not counting the subcontractors), the company saved over 47 cycles – which can be further multiplied by roughly 300 tire replacement operations in a year. That results in almost 1.3 million m3 of extra lifted overburden per annum. Going back to the average rate of production per truck at our company, EMCO saved investment in 1.5-2 dump trucks that cost some USD 2.5 million each!
  5. Personnel involvement in servicing equipment – TPM. The basic concept of Total Productive Management (TPM) involves the equipment operator in its daily inspection and servicing, using every single pause in the production process. The aim is to maximize the equipment’s operational availability between the maintenance stops.

    It goes without saying that nobody expects the operator to replace a technician. But it is surprising how many unexpected problems can be avoided by applying simple common sense, such as keeping the equipment clean. Or applying a prophylactic coat of paint. The reason is simple. A clean piece of machinery or fresh paint makes it very easy to detect leaks of the lube oil – a clear sign of a compromised hermetic seal in the lubrication system. It is also easy to spot small cracks that can be cured by a quick weld during the next operational halt in loading, before they become a big problem and cause an interruption to operations for major repairs or replacing the whole part. That, of course, will cost much more and can take weeks if the spare part is not in stock.

    Take, for example, the preventive inspection of an excavator by a technician during the lunch break. In fact, the machine is inspected twice a shift (half-day), once by an operator before he takes over at the beginning of the shift, when as a rule a great deal of information about the current state of the machine is handed over by the departing operator in the logbook, and then by a technician during the lunch break. The technician covers the parts and units which the operator cannot do because he lacks the qualifications and analyses the information received from the operator and the logbook.

    The costs of such an inspection are miniscule, but the effect is huge. A stoppage due to technical issues far outweighs any other by its negative effect on the production rate. We are talking about days – if not weeks – of lost production. The ability to detect future problems at their inception is therefore priceless.

    However, TPM also has its challenges. The biggest is the need to effect a complete change in the psychology of the operators. They need to understand that their workstation is the only source of their income – when it works! End of story!

    That requires a major overhaul of their mindset, so meticulous implementation can take weeks or months. The second big challenge – which, unfortunately, has a negative effect on the speed at which the former can be implemented – is the impossibility of quickly establishing a direct, statistically proven relationship between the implementation and the effect of the TPM.  Technical issues are multifaceted and discreet, certain failures can happen as often as once a year and it is difficult to establish a connection between the new measures and their effect on the equipment availability rate in a short period.

    This, of course, provides ammunition to those who are opposed to everything new, above all on the shop floor, who are used to working “as before” and do not like change.

    But nothing solves this problem better than KPI for the equipment operators, as well as the technicians. That cures it.

1 Overburden – the material that lies above an area that lends itself to economical exploitation.
2 Vessels refurbished to reload bulk cargo from smaller barges onto larger ocean-going bulkers.
3 Demurrage – a charge payable to the owner of a chartered ship on failure to load or discharge the ship within the time agreed.