Head in the cloud: miners embrace smart software to cut costs
Many mining companies are making the switch to cloud computing, with providers offering solutions across a steadily growing list of applications. As adoption increases, to what extent is the trend influenced by the potential to reduce capital expenditure? SAP's global lead for mining Ruediger Schroedter tells Abi Millar how a hybrid or cloud-based IT strategy can help a mining company cut costs.
Over the last few years, many companies' IT systems have undergone a quiet revolution. As they make the transition from on-premise hardware to cloud-based solutions, they stand to reap significant advantages, with real potential to streamline their processes and cut costs.
While this trend spans multiple sectors, mining companies have been particularly strong recent adopters. According to a 2014 report by Frost & Sullivan, Australia's cloud services market is set to soar from $1.23bn in 2013 to $4.55bn by 2018, with an average compound annual growth rate of 30%. Along with education, government and financial services, mining is one of the key industries driving the trend.
For the software corporation SAP, this growth comes as no surprise. With clients including MMG, Peabody Energy, Cameco and ArcelorMittal Mining, the company has noted a significant uptick in interest in cloud computing. Within the next three years, 80% of its energy and natural resources customers intend to make the transition to a cloud or hybrid IT model.
"When you look at mining companies today, most of them are in a hybrid situation," says Ruediger Schroedter, lead for the mining industry business unit at SAP. "They are running some solutions in the cloud, and some on site, and there are maybe some solutions they would like to move into the cloud in the future."
From CapEx to OpEx
There are various reasons for this shift, but at base it comes down to simple economics. As commodity prices continue to fall, mining companies are contending with ever tighter margins, and the search is on for new ways to optimise performance. The industry is therefore attempting to decrease its capital expenditure (CapEx) and focus on operational expenditure (OpEx), with a view to taking fewer risks and better controlling costs.
Within this climate, cloud computing looks like an attractive proposition. If a mining company buys a traditional license, it typically has to invest a large sum of money upfront. But because cloud based services work on a subscription model (and therefore OpEx rather than CapEx), cashflow is improved and implementation becomes more predictable. What is more, the costs of running the software are accurately scaled to the number of users.
GE and Komatsu's latest collaboration, announced in April, will use the Internet of Things (IoT) to improve efficiency.
"It means you don't have to buy or maintain hardware, and it's easier to deploy the solutions," explains Schroedter. "You don't have to plan for updates or system downtime, and you can probably save on user training because cloud solutions tend to be less complex and easier to learn."
Considering these factors together, it is easy to see why so many companies are moving to cloud. In the Frost & Sullivan survey, organisations reported an average IT cost savings of 12% through the use of cloud computing services.
That said, implementation remains uneven, and few mining companies are willing or able to make a complete transition just yet. They may have concerns regarding data security, or face regulatory obstacles to implementation. As a result, they typically begin by 'cloudifying' aspects of their existing legacy systems, moving on to other areas only once they feel confident in the deployment.
Mining industry applications
One important area is workforce management, alongside sales and operations planning, which are often still conducted on spreadsheets. HR departments can easily use cloud solutions to manage employees and track their performance. SAP will soon offer a Total Workforce Management solution to help companies deal with an increasingly variable workforce.
"In mining, you will find that contractors typically make up more than 50% of the workforce, and this is difficult to manage," explains Schroedter. "You need to make sure they're fulfilling their contracts, and track all the hours they have to do. We're working on bringing this together - it's a big area."
Many companies are also moving their procurement processes to the cloud. This enables electronic ordering and billing, which in turn reduces invoice errors and allows the company to deal with a large number of vendors and parts.
Two emerging areas are the so-called 'internet of things' - which includes predictive maintenance and connected logistics - and collaborative asset management. This will enable mining companies to simplify their asset maintenance, leading ultimately to new business models that improve equipment performance.
"SAP has a solution in the pipeline, which will be ready by the end of this year or the start of next," says Schroedter. "This will bring together equipment manufacturers with equipment users. The idea is that manufacturers create data and share it through a network, keeping it updated with warranties and maintenance plans.
"It gets passed to the users, who have a standardised, synchronised database of master data containing up-to-date information. They don't have to go to manuals or bulletins about recalls - they can do it through a cloud solution."
A bright future
As providers continue to develop software of this kind, cloud computing is becoming ever more prevalent in the mining sector. The market has now moved out of the early adopter stage, and is well into the early growth stage of mainstream adoption. We can expect this growth to continue as the present challenges are ironed out.
"We envision that business solutions will be predominantly in the cloud in the future, far more so than they are now," says Schroedter. "We may now be taking baby steps on the customer side, but in ten years or so we will have overcome the obstacles and all solutions will be in the cloud.
"What's happening now is that companies have a hybrid model of some cloud and some on-premise solutions, and the next stage will be to move more on-premise solutions to the private cloud, and then once more solutions become available I think the private cloud will become more widely adopted. In the mid-term future we will find cloud solutions everywhere."