White Paper

The SAP

Mining Solution
2
The SAP Mining Solution
Copyright 1999 SAP AG. All rights reserved.
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The SAP Mining Solution
Contents
Executive Summary 5
Mining Industry Overview 6
Remote Site Operations 6
A Unique, Sustainable Competitive Advantage 6
High Environmental and Social Impact 6
Highly Complex and Expensive Development 6
Long Business Cycle Times 7
Industry Trends 7
IT in the Mining Industry 8
Planning, Execution, and Control 9
Key Performance Indicators (KPIs) 10
Different Information for Different Roles 11
Resource-Pushed Planning 12
Evaluating the Ore Reserve 12
Phases of Mine Planning 12
Life of Mine Plan 12
Long-Term Plan 12
Operational and Short Term Plan 13
Production Plan 13
SAP System Enabled Planning 13
Short-Term Plan 14
Production Plan 15
SAP Recipe Structure 15
Costing Model 15
Cutoff Grade Management in SAP 16
Execution and Control 16
The SAP Mining Solution 17
Enterprise Systems Technology 17
The Mining Solution 18
SAP Systems Integration 20
Appendix A: Typical KPIs and Cost Drivers 21
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The SAP Mining Solution
5
The SAP Mining Solution
Executive Summary
The mining industry faces numerous challenges. In
most sectors of the industry, rising costs and steadily
declining commodity prices put operating margins un-
der pressure. At the same time, the development of
new, more competitive operations take advantage of
technological advances in mining and metallurgical
processes.
To remain competitive, mining operations must face
these challenges. Assisted by advances in information
technology, many companies seek to improve their
management effectiveness by:
s Building a single, shared repository of company
information
s Gaining a detailed understanding of costs across
different mining and metallurgical processes
s Understanding the full economic consequences of
alternative mine plans
s Analyzing what-if operation scenarios and
evaluating the impact on costs and revenue of the
scenarios
s Optimally utilizing and maintaining equipment
This paper outlines the critical support role that the
integrated SAP enterprise-wide business systems will
play in the mining industry. It also examines key is-
sues relating to successful enterprise-wide systems
design and implementation.
Integrated enterprise systems offer many benefits,
some of which include:
s Substantial reductions in the time needed to
respond to new data acquired during the mining
process
s Ensuring long and short-term plan integrity
through continuous refinement and detailing
s Greatly improved communication with all
employees, using shared data on a timely basis
s A foundation for continuous improvement
This document also outlines the role of SAP business
systems in a typical mining and primary processing
operation, with particular emphasis on the resource-
driven approach to planning and running mining busi-
nesses. For the purposes of this paper and in the inter-
ests of brevity, a detailed discussion of SAP solutions
that enable downstream operations (such as smelting
and refining) is omitted.
The paper begins with an overview of the mining in-
dustry and its use of information technology as the
broad context for outlining the wider business con-
text within which SAP systems will be designed and
implemented. The overview includes discussion of
industry structure and trends, as well as organization-
al issues pertaining to the implementation of business
systems. This context has implications for how the
customer envisions, plans, and leads the SAP project
to ensure maximum business benefit.
The next section outlines the SAP Mining Solution
that features SAP System as the critical support sys-
tem, augmented by specialized third-party systems,
and illustrates the solution map. This section specifi-
cally focuses on aspects of mine planning. The impor-
tance of mine planning for assuring the value of the
business into the future makes it the starting point for
all planning in the business.
Given the emphasis on mine planning, the paper does
not discuss other aspects of the full SAP Mining Solu-
tion, such as detail scheduling, environmental health
and safety, and capital project management. It also
omits a discussion of more generic business functions
(commercial functions and systems), except as re-
quired by issues of integration across the solution.
The SAP Mining Solution will not replace mine plan-
ning or expert mine planning systems (such as Vul-
can, Datamine, Surpac, and Whittle), but will store the
planning results. As an enterprise-wide business sys-
tem, SAP System will issue the orders to carry out the
plans and provide the framework for coordinating and
checking the execution of the plans.
Each mining operation differs in how the business is
run, its ore body (resource), its location, its physical
and social infrastructure, and the mining methods and
equipment it uses. SAP System is proving itself to be
a flexible system that allows each mining business to
have its own unique configuration. The design and
configuration principles discussed in this paper, how-
ever, are generic and can apply to any mining opera-
tion.
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The SAP Mining Solution
Mining Industry Overview
This paper and the SAP Mining Solution define the
mining industry as the group of enterprises around the
world that are involved in the following business:
Mining, mineral processing, smelting, and refining
metallic and non-metallic minerals and fuels, exclud-
ing oil and gas. The definition includes mining and
primary processing of iron ore, but excludes iron and
steel making.
The following characterize the industry:
s Remote site operations
s A single sustainable competitive advantage
s High environmental and social impact
s Highly complex and expensive development
s Long business cycle times
Remote Site Operations
Mining and mineral processing is carried at the site of
the mineral ore body, which is, invariably remote from
centers of population. Commonly, but less frequently,
the subsequent stages of smelting and refining are also
carried out at remote sites.
Companies choose to process ore (in one or more stag-
es) adjacent to the mine site to avoid the cost of trans-
porting non-mineral waste rock with the product.
Remote siting of mines generally means that the min-
ing business must pay for and support dedicated in-
dustrial and social infrastructure and logistics (power
generation, townships, railways, and ports, for exam-
ple). Accordingly, the operations management task will
extend beyond the technical and commercial demands
of the actual operation and include the travel, accom-
modation, and off-the-job welfare of the mine site
workers, family, and local inhabitants. The enterprise-
wide business systems of SAP offer integrated systems
support to include the management of the mine sites
industrial and social infrastructure.
A Unique, Sustainable Competitive Advantage
The geological and geographic fundamentals of an ore
body provide the basis for economic exploitation. A
mining companys ownership of a global quality ore
body provides it with its most important advantage.
An inferior ore body cannot be made superior. A su-
perior ore body can, however, be rendered useless by
inferior operations management, marketing, and so on.
Once the ore body has been found and developed,
managements primary focus is on operations conti-
nuity, efficiency, and unremitting cost control.
Capital asset productivity and economies of scale drive
decisions about mining and processing configurations
and their on-going management. Generally, ore bod-
ies are mined and processed using the largest equip-
ment, at the highest sustainable production rate.
Over the last twenty years or more, the mining of many
minerals and commodities has benefited from the use
of larger mining equipment. Use of such equipment has
resulted in higher capital intensity, higher productiv-
ity, and reduced production costs across the various
commodity niches, including copper, lead, zinc, and
coal.
SAP business systems enable close management of
capital assets and provide a sound basis for disciplined
continuous improvement.
High Environmental and Social Impact
By their very nature, mine sites (as well as downstream
smelter sites) are environmentally and socially disrup-
tive.
The environmental movement has challenged mining
companies to perform more responsibly and to engage
principles of sustainable development. For the most
part and in the West, companies have responded to this
challenge positively. Minimization and management of
the environmental impact of mining has become part
of operating a mining business.
SAP business systems support and enable environ-
mental monitoring and legislative compliance pro-
grams.
Highly Complex and Expensive Development
Mining companies reduce the size of their productive
asset (the ore body or mineral resource) each day and
eventually need to replace it. However, finding, eval-
uating, and developing a new mine is technically and
economically complex, expensive, and long-term.
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The SAP Mining Solution
Competition in the industry plays itself out predomi-
nantly in competition for new mine projects (acquisi-
tions and new discoveries), rather than in a customer-
focused approach to winning market share.
Development projects typically have lead times of the
order of 5-to-10 years or more. Effective development
activity, together with good day-to-day cost manage-
ment, generally mark the long-term players. Poor de-
velopment work deprives shareholders of dividends,
consumes shareholders funds, and has huge, attend-
ant opportunity costs.
Newly discovered ore bodies require extensive tech-
nical and economic evaluation before a company can
make investment decisions. The high cost and risk of
geological exploration activities and metallurgical test
programs and studies typically cause evaluation to
proceed through a series of pre-feasibility studies.
Each phase of study is more detailed and more costly
to undertake. Future investment critically depends
upon the quality and cost-effectiveness of the studies
process.
Resource studies, in turn, critically depend upon high
quality, readily accessible information. The informa-
tion required is extensive and includes:
s Exploration and ore body geology and mineralogy
s Mine planning
s Capital cost data for a wide array of equipment and
construction
s Operating cost data for all possible mining and
processing streams
s Labor costs and productivity data
s Market and pricing data for the expected mineral
commodity or product
SAP business systems support development work by
making up-to-date capital and operating costs readily
available, enabling benchmarking, and by providing
systems support for project management.
Long Business Cycle Times
Long-term (one to five years) supply contracts and
long lead times (5 to 15 years) for resource discovery
and development determine business cycle times (the
time from mine to market and time for capital replen-
ishment and mine development) in the mining indus-
try. Thus, much decision-making in the industry in-
volves a much longer timeframe than is the case for IT
and other suppliers to the industry.
SAP business systems enable retention of company-
specific experience by embedding best practices for
business processes in the systems configuration, and
by providing a single source of integrated, high in-
tegrity information.
Industry Trends
Current trends in the broader industry are profound
and demanding, including:
s Long-term decline in commodity prices
Pressing more and more cost reduction and
productivity improvement, such as a move to
shared services and outsourcing of selected
functions (IT, mining, and maintenance, for
example)
s Poor return on capital invested
Leading to mergers, divestments, and write-downs
s Contract (outsourced) mining
Contract mining, which involves transferring the
actual mining operation to a specialized contractor,
has become increasingly popular in Australia and
North America. Contract mining has evolved from
the heavy civil engineering industry, based upon
capital-intensive, heavy earth moving, and is
continuously benchmarked by high-volume, low
margin, and competitively tendered lump-sum
contracts.
s Current trends impacting operating costs
x Work practices reform
x Taxation
x Infrastructure provision and supply costs
x Environmental compliance
s Current trends impacting development cost
effectiveness
x Niche focus (competencies)
x Native title
x Statutory approvals processes
s Mining will become safer
Lost time injuries have been reduced, but fatalities
remain at an unacceptable level. More effort will be
focused on safety
s Increasing environmental compliance requirements
Requiring a higher level of data acquisition,
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The SAP Mining Solution
monitoring, and reporting
s Increasing native title requirements
Requiring specialized investigations, data
collection, statutory compliance, and relationship
management (indigenous communities and
governments)
s In some countries, mineworkers will become de-
unionized
There is a trend in Australia toward employing mine
workers with individual contracts. This approach
aims at improving work practices (flexibility and
multiple skills), reducing routine overtime, and
improving workplace relations
s Fly-in-fly-out manning of remote operations
Requiring a higher level of human resources
management, transport, and supplier management
IT in the Mining Industry
The mining industry has a long history of development
and use of specialized, production-related information
technology (distributed process control, for example).
In geological exploration, mining companies have
made use of the latest database technology in collect-
ing, categorizing, and data-mining vast quantities of
field data.
Mining engineers have also made use of advances in
database technology for storing and manipulating the
vast quantities of data contained in models of the ore
body to be mined. Equally large data sets are manip-
ulated in digitally stored mine plans which are re-
quired to show the physical and economic mine de-
sign criteria and rate, in addition to the sequence and
quality of ore to be mined.
In scheduling and dispatching the fleet of heavy equip-
ment that performs the mining of waste and ore in
open pit mines, software, such as a mining fleet man-
agement system, is used. The software tracks and opti-
mizes the in-pit journeys of the mining fleet, ensuring
the best use of what is often the mines largest single
capital asset.
In processing the mined ore, mining company metal-
lurgists have worked at the cutting edge of automat-
ing metallurgical processes. Unlike chemical and man-
ufacturing processes, ore processing can be highly
variable from mine to mine (even when mining the
same commodity) and is unforgiving of delicate elec-
tronics. Today, all but the smallest-scale mining oper-
ations have processing plants controlled by sophisti-
cated distributed control systems.
Enabling software, such as Excel, Access, and Lotus 1-
2-3, is also used extensively to plan and monitor a
variety of production processes and to track produc-
tion physicals. A typical application for such software
would track the companys metallurgical balance.
In administration, accounting, and human resources,
mining companies have generally invested as much in
IT as have other industries. Although a high number
of specialized IT applications exist, some are partially
integrated across activities and many are not. Much
of the production planning, information collection,
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The SAP Mining Solution
analysis, and reporting occur by spreadsheet and site.
Finance, accounting, and costs control systems may be
based at the head office and are not integrated with
production systems. Production information may be
collected at several points, at different times, for dif-
ferent purposes, and according to different standards.
Information integrity across the enterprise is poor and
aggregated performance metrics (financial and physi-
cal) are difficult to reconcile.
Beyond the mining industry, information systems and
their supporting information technologies are many
and varied, and were developed for an equal variety
of industrial purposes. They range from geographical
positioning systems to geological data management
and mine design systems, programmable logic con-
trollers, supervisory control and data acquisition (in-
cluding fleet data capture, in-stream analyzers, and so
on), management information systems, manufacturing
execution systems, materials resources planning sys-
tems, transaction processing, and enterprise resource
planning systems.
The evolution and spread of these various industrial
information systems is illustrated in Figure 1. The fig-
ure also notes their industrial purpose and use in sup-
port of management decision-making. The approxi-
mate level of use of information technology in the
mining industry is also shown:
Figure 1: Industrial Use of Information Technology.
Source: AMR Research, Inc.
Planning, Execution, and Control
The SAP enterprise system acts as the critical support
system across the company. Its integration of commer-
cial, production, and support processes rapidly and
reliably informs and enables enterprise-wide planning,
execution and reporting.
Short-term and medium-term production plans and
capital growth plans are developed to maintain imme-
diate business viability and to achieve the longer-term
strategic objectives of the company (such as market
share growth and portfolio diversification). Measur-
ing progress against plans tells us if we are on track
to achieving our aims.
Managers often attempt to set up systems that meas-
ure every conceivable thing. They then make all the
widely available data in the expectation that people
will choose what they need from it. Such information
systems and the indicators built into them are often
built without reference to the cost and value structure
of the business, or its strategic needs. The often used
but misapplied idea that all information should be
made available to all people ignores the reality that
people in different roles and at different levels in the
organization have unique information requirements.
Providing large amounts of undifferentiated informa-
tion (not role-specific) carries with it a large opportu-
nity cost and is counterproductive.
Business measures (key performance indicators) drive
an organization to achieve its goals. To be effective,
the system that delivers those measures must direct
information to the people who need it. The design and
implementation of systems including the selection
and direction of information to drive business per-
formance is a critical source of competitive advan-
tage.
Knowing what to measure the purpose of key per-
formance indicators and how to act on those metrics
is as basic to mining as it is to any other business. Two
key questions arise:
s What is important to measure?
s What information is critical to whom?
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The SAP Mining Solution
Key Performance Indicators (KPIs)
The first question must be addressed by referring to
the business value chain, the sequence of activities in
a business that progressively adds value to the salea-
ble product of the business. The generic mining indus-
try value chain (see Figure 2) illustrates the economic
structure of mining operations and how value is gained
and lost along the chain of activities from the mine to
the market.
Key performance indicators draw attention to:
s The effectiveness of each stage in the chain
s The efficient use of input resources
s Opportunities to minimize waste
There are four broadly different uses for performance
information:
s Planning
s Keeping score
Are we doing well or poorly? Scorekeeping
accumulated and dissected performance data to
answer these questions, such as period-to-date
totals and averages
s Directing Attention
Which problems should we look at? Variances in
management reports direct attention to operating
problems, wastage, quality issues, and opportunities
s Solving Problems
What alternative course of action is best? This
information is used for long term planning such as
budgeting and for special projects
Performance data can also be a source of information
for systems that manage assets.
Figure 2: Typical Key Performance Indicators in Mining
Cost-related KPIs are output measures of resources and
activities, such as tons, man-hours, meters drilled, and
so on. Although many components make up the cost
of specific mining activities, only one or two will drive
the cost of the activity and its resource needs.
These cost indicators are basic measures of effective-
ness, but can also be used to estimate resource require-
ments for supply purposes.
For example, materials used in mine development can
be factored on the basis of meters of development.
Every meter will have a standard bill of material asso-
ciated with it, a recipe.
For example, every 10 meters of advance will con-
sume:
s X kg of explosives
s Y kg of drill steels (of various types)
s Z m of hose
Likewise, every 1,000 tons of ore milled will consume:
s X kg of grinding steel
s Y kg of lime
s Z filter cloths
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The SAP Mining Solution
Here, the cost indicators are meters and tons, and they
can be applied to actual meters and tons measured
each week to estimate all the weekly supplies required
for the ongoing support of the operation. If this is done
for every step in the value chain, there is substantial
potential for reducing working capital through better
coordination of supply and demand.
Appendix A shows typical KPIs and cost drivers of
mining performance, from the mine to the market, to-
gether with typical cost indicators for each major step.
Different Information for Different Roles
The levels of aggregation of KPI information and the
time periods embraced by the KPIs must match the
accountability, the authority, and the different levels
or planning horizons of the different roles in the or-
ganizational hierarchy. For example, shift bosses have
a shorter planning horizon than mine managers, and
will assess performance using the less aggregated
measures. Failure to match critical performance infor-
mation with roles, authorities, and accountabilities will
lead to information overload (with unnecessary infor-
mation), poor managerial productivity, and loss of
system credibility.
Employees may still have access to the supporting
measures and the ability to drill down for data, as they
may need it.
The role description or duty statement of employees
indicates different information and measures required
for planning, execution, and control. In a typical min-
ing operation, critical, minimum information require-
ments for roles would appear as indicated in Figure 3.
Figure 3: Role Requirements for Information
Quarter Control
Quarter Control Planning
Month Control Planning
Week Control Planning
Day and Shift Control
Examples cash flow
$/t metal
$/t ore
t/year
major contracts
mine life left
turnover
disabling injuries
compliance
Budget variances
Planning
$/t mined, milled,
etc.
output
quality
utilization
LTIs
weekly targets
recoveries
grades
losses
kg/t
kWh/t etc.
tph
availability
daily targets
productivity
crew mngt.
process control
downtime
supply
lost time
accidents
Timeframe
Corporate &
Mine Manager
Department
Managers
Professional
Staff
Coordinators &
Shift Bosses
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The SAP Mining Solution
Resource-Pushed Planning
Mining operations generally exploit a finite mineral
resource. However, you often have a range of possi-
ble options for how to make the best use of what na-
ture provides throughout the life of the mine.
Production planning in a mining environment is not
driven by market demand in the sense that it is in most
manufacturing industries. Critically, the whole-of-
business planning process is driven by the medium-
to-long-term need for optimal exploitation of the min-
eral resource, leading to the maximum investment
yield from the resource.
Evaluating the Ore Reserve
During the life of a mine, you use geological informa-
tion obtained through analyzing ore samples from
exploration drilling, geological surveying, and actual
mining production to evaluate the ore body continu-
ously. Using geotechnical and geostatistical analysis,
you establish a geological block model representing
the ore body. Each block has certain predicted char-
acteristics such as ore grade, geological zone, and rock
type. Additional information such as overburden depth
and haul distance could also be captured for each
block. All this information is selectively merged into
a single data set sometimes referred to as the mineral
resource inventory, which forms the basis of any sub-
sequent mine planning activities.
Based upon this knowledge about the mineral re-
source, we need to answer the following questions:
which blocks are viable to be mined (pay blocks) and
in which sequence should we mine these blocks?
The answers to these questions lead us to the complex
task of mine planning and the phases related to this
activity.
Phases of Mine Planning
Mining operations generally exploit a finite ore body.
This finitude constrains the number of options availa-
ble for optimization throughout the life of the mine.
The phases of mine planning are outlined in Figure 4.
Figure 4: Phases of Mine Planning
Life of Mine Plan
The life of mine (LOM) plan spans the period from the
current time until the year the final block of ore is
mined, giving the name life of mine. The LOM plan
typically delivers a set of practical stope and pit de-
signs (scenarios), estimated net present value (NPV),
tons to mine, and final product recovery figures.
This process is clearly focused on a close integration
of planning and optimization systems to the geologi-
cal and mining systems.
Information from the mineral resource inventory,
practical design criteria, and sales and marketing in-
formation such as price, demand, and risk parameters
are used to plan the life of mine. SAP System collects
the necessary information for the derivation of these
parameters and models from the technical mine plan-
ning systems and feeds them into the business mode-
ling system.
Long-Term Plan
You select the most suitable expansion option from the
LOM plan and create a long-term plan covering a pe-
riod of about five years. The long-term plan outlines
annual capital developments, the general direction of
mining in the ore body, annual production quantities,
and costs.
All planning is subject to and optimized for given
economic constraints and parameters. It is performed
with long-term outcomes in mind to ensure the return
on investment expected by the optimal exploitation of
the ore body.
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The SAP Mining Solution
The long term maintenance and capital expenditure
requirements form part of this plan and provide the
installed capacity available for each year in the long
term plan period.
The annualized LTP sequence may serve as input into
SAP System where it is costed. You can use the plan to
estimate NPV/IRR outcomes for capital projects pro-
posed for the period.
Operational and Short Term Plan
The short-term or operational plan typically expands
the first one to three years of the long-term plan into
more detail, using defined development sequences and
production quantities and rates. Production operations
are planned with a monthly resolution using the actu-
al physical resources. Quarterly forecast plans and
four-month mining plans are all categorized under
short-term plan (STP) because they all work at the same
level of resolution and represent a technically feasi-
ble and revised (improved) manifestation of the LTP.
Here, SAP System becomes an extension of the short-
term plan created by the mine planning system. The
short-term (one to three-year) mining demand (slots
in sequence, characteristics, quantities, and rates) are
transferred to SAP System to determine the material
and capacity requirements, transfer cost center re-
quirements, and estimate planned costs.
The main focus of this plan provides performance re-
porting and assists in deriving the annual budget for
board approval. This is therefore the first planning
phase that has a clear requirement for capture in SAP
System for reporting.
Production Plan
This is the detail production plan (crusher feed and
head feed prediction). You can set the plan time frame
by shift or daily, although most mines would plan a
week or month ahead at this level of detail.
This detailed level of planning no longer requires tight
integration to the geological systems. Mining options
are fairly limited, because only exposed material can
be accessed. Also, block and material properties are
no longer derived from geological modeling, but pre-
dominantly from laboratory assays of blast-hole drill-
chip samples.
This is not to say that there are no options left: the
planning engineer normally has several choices and
can select a combination of ore sources for a suitable
head feed through the crusher. In an open pit envi-
ronment, blasted composites are often deemed eco-
nomic ore or waste on the ground, and you can choose
between blending stockpiles and a selection of un-
blasted blocks. In an underground mining operation,
different stopes can be mined at different rates.
The following is the sequence of events for detailed
production planning:
s The mine planner will suggest weekly demands for
quantities of crushed ore and waste to be met from
specific available blocks and stopes (normal
composite, waste composite, stockpile, and planned
block).
s Each ore block has a set of characteristics
describing the geographical location, geological
properties, qualities, and equipment rates associated
with it.
s Planning will be an iterative process optimizing for
grade, other ore qualities, capacity, and cost. After
a specific planning run the planner can evaluate
these constraints visible in the crusher feed and
head feed prediction report, accept the plan or
select different ore sources, quantities, and
resources for a subsequent run.
s The plan will include derived quantities to ore
stockpiles, marginal waste stockpiles, and true
waste dumps.
SAP System Enabled Planning
A range of highly specialized mine planning, geolog-
ical, and geotechnical software systems have been
developed and used over time in the mining industry
to support ore body analysis, mine design, mine plan-
ning, and scheduling. Historically, these were stand-
alone systems, with no integration to each other or to
the business systems or the downstream production
systems.
Because mine ore body analysis and mine planning
work is concerned with the core issue of the invest-
ment quality of the business, they drive the operations
14
The SAP Mining Solution
strategy. All downstream activities must respond to the
outcome of this work.
The production planning for process industries com-
ponent of SAP System (PP/PP-PI) provides integration
between the mine planning systems and the R/3 Cost-
ing, Financial, Materials Management, Human Re-
source and Plant Maintenance components (see Fig-
ure 5).
Figure 5: SAP System Mine Planning Integration
The SAP-enabled functionality mainly plays a role in
the short-term and production planning phases. As
illustrated in Figure 6, you can integrate the long-term
plan into SAP System in a similar manner, although
this issue falls outside the scope of in this paper.
Short-Term Plan
Here, SAP System becomes an extension of the short-
term plan created by the mine planning system. The
short term (one to three-year) mining demand (blocks
in sequence, characteristics, quantities, and rates) is
transferred to R/3 to determine the material and ca-
pacity requirements, transfer cost center requirements,
and estimate planned costs. SAP System uses this in-
put as a production demand and then plans monthly
production requirements, which you can then sched-
ule in detail.
Figure 6: The SAP Role in Short-Term Planning
At this point, integration with geological systems as
well as with maintenance planning systems is equally
important. The new release of SAP System allows for
this integration.
Short-term planning is an iterative process, and SAP
System will allow for storage of several versions of the
plan. The mine planner can resequence, change blocks,
add new stockpiles or stopes, and reload the demand
into SAP System.
15
The SAP Mining Solution
Production Plan
SAP System has successfully been used as the plan-
ning tool for this detailed planning phase. This basis
provides tight integration between planned and actu-
al values, as well seamless integration with all other
SAP components.
Figure 7: Production Planning Recipe
SAP Recipe Structure
Within SAP System, a recipe is a way of linking a set
of business processes to enable improved management
and optimization of the whole. (See Figure 7.) Recipes
appear as user-defined master data in the system. Dif-
ferent mining operations and methods will require
different recipe structures. Recipes model the opera-
tion in terms of a sequenced set of processes and a list
of materials.
In the continuous parts of the operation, an SAP proc-
ess order would represent a sequence of processes over
a defined period such as a shift or a week. In the plan-
ning process, process orders are created using the rec-
ipe master data. These process orders are the business
objects used for planning execution and control.
The process orders integrate with all other functional
modules of SAP (FI, CO, MM, PM, HR, SD, and QM) as
well as with the Production Information Management
System (PIMS) for the collection of actuals data.
In Figure 7, the mining recipe simulates loading from
either a stockpile or blasted ore from a specific block.
Power and diesel consumption is calculated independ-
ently of characteristics for each routing scenario in the
recipe. If a block were 100% waste, the process order
created from the recipe would include only the haul
to waste operation. The work rate of a shovel, dragline,
or LHD would be derived during the MRP.
A demand to load from a planned block will automat-
ically trigger the drill and blast recipe to plan the blast
in time for the mining recipe. Again, the duration of
the drill and blast process and all consumable quanti-
ties is calculated from characteristics if required. In
turn, the drill and blast recipe has a demand for ex-
plosives, which triggers the purchase of the required
explosives (based upon best materials management
practice).
The relationship between the treatment recipe and the
mining recipe is designed to push the crushed ore
through the treatment plant. In other words, a set of
orders (one per block) created for the mining recipe
is grouped together for a specific time period (day,
week, or month), all the qualities and grades are aver-
aged to single figures, and this head feed is consumed
by the treatment recipe.
The treatment recipe produces final products as SAP
co-products.
A conceptually similar recipe structure can be de-
signed for different scenarios. For example, transport-
ing ore, ship loading, and blending through stackers
and reclaimers have concepts similar to the mining
recipe in that there is more than one possible ore
source and destination connected by various possible
operations.
Costing Model
Costs are modeled in SAP System per process order
using the recipes in PP-PI, and are typically either
fixed or variable. True variable costs are consumables
measured accurately such as reagents, diesel, or deto-
16
The SAP Mining Solution
nators. Indirect variable costs are those items not
measured exactly per block or order and charged at a
standard rate from a cost center to an order (drill bits,
for example). Fixed costs can include labor or some
overhead cost. Any fixed cost can be apportioned in
SAP System to production orders up to full absorp-
tion costing.
You can cost single mining blocks by aggregating the
costs of all orders for a specific block and apportion-
ing processing costs to that block on a tonnage basis.
Costs can be rolled up by any of the stored character-
istic values that will allow comparisons between dif-
ferent locations, rock types, and so on. In an under-
ground mine, costs such as rock bolting can be tracked
per stope.
Cutoff Grade Management in SAP
In any mining operation the operating costs are for
the most part proportional to the tonnage of materi-
al to be mined and handled. For a given tonnage of
ore, the production costs are fairly constant and inde-
pendent of ore quality (grade). However, the revenue
generated from selling a final product (concentrate, for
example) is driven by the amount of product sold and,
in turn, by the ore grade. That is, the revenue is (pre-
dominantly) proportional to the ore grade.
For a given mineral ore body, a grade of mineraliza-
tion exists below which the revenue to be derived from
product sales will be less than the cost of production.
This grade is called the economic cut-off grade (see
Figure 8).
Figure 8: Mining Cutoff Grade
By modeling the production processes using SAP rec-
ipes in the PP-PI component (including data inputs for
the blocks to be mined), you can use SAP System to
assist in cut-off grade determination and on-going
management. SAP integration provides immediate ac-
cess to accurate operations cost information needed to
define economically recoverable ore.
Execution and Control
During execution of the production schedule, data is
collected from the mine and plant control systems. This
data is most often used to represent the mining and
plant business processes to operators in a way that
helps them operate the mine and plant optimally. In
the mine, typically, the location and condition of key
mobile equipment might be shown. Using this online
information, operators can control all mining opera-
tions, making allowances for disturbances from the
production plan generated in SAP System. In the case
of equipment breakdown for example, maintenance
personnel can be dispatched to the site to make repairs.
In the plant, SCADA systems graphically represent the
plant and its operating status, including trending and
alarm information. A subset of this event data is re-
quired to inform certain business and logistics trans-
actions in SAP System, such as confirmation of mate-
rials consumed and product made. The raw data is col-
lected form the various process control systems,
contextualized (integrating raw data from tons/hour),
verified (through mass balancing), and then electron-
ically up-loaded to the relevant SAP PP-PI process or-
ders.
17
The SAP Mining Solution
The SAP Mining Solution
Enterprise Systems Technology
In simple terms, the technology of enterprise informa-
tion systems can be thought of with two main opera-
tional features (see Figure 9). First, there is a single,
shared information repository for all company com-
mercial and operations information. This repository
can be considered the backbone of the Management
Information System (MIS). Subject to predefined ac-
cess authority, this information can be accessed by all
of the systems users.
The second feature is transaction processing. Transac-
tions are business-related exchanges such as the fol-
lowing:
s Making salary payments to employees
s Issuing invoices for sales to customers
s Making payments to suppliers
s Reordering critical consumables
s Instructing the overhaul of mobile equipment
s Instructing a specific production campaign
Transaction processing enables systems users to do
their work: to place work orders, raise invoices, pay
accounts, and place supply orders. Transaction
processing makes use of the common information and
updates the common information as each transaction
is performed. Using SAP components (such as FI, CO,
MM, PM, and HR), transaction processing can be used
in a range a companys work functions.
Because these components of business systems are in-
tegrated across the company, the requirements and
outcomes of the real-time transaction processing are
available across the whole system. Employees can now
see what is happening, what orders are being placed,
and what work is being instructed.
Figure 9: A Simplified View of Enterprise Information
Systems Technology
When integrated into the work of a company, the two
foundation features of the enterprise systems techno-
logy are elaborated into many more features and
functions, including the following:
s The system is process-focussed and crosses multiple
functions and organizational boundaries
s No single group or individual possesses ownership
of the system and its data
s Reports from the system are required for multiple
audiences and at differing levels of detail
s The enterprise system will probably integrate a
number of different computing technologies
s The enterprise system will engage the whole of the
companys work activities
s Work processes, enabled by the system, will be re-
engineered (business process re-engineering and
continuous improvement are synonymous with the
use of the system)
s The enterprise system will enable strategic goals
such as improving existing products and service,
developing new products and services, changing
the existing industry and its characteristics,
improving productivity, reducing costs, and
improving response time
18
The SAP Mining Solution
The Mining Solution
In line with many other large-scale businesses, many
mining companies have become interested in recent
developments in business systems technology. During
the past three years or so, a large number of major
mining companies have purchased SAP System as their
core business system and have committed to on-go-
ing extension of its use.
The projects under way in the mining industry show
good success with the application of SAP System to
the core commercial business processes but with mod-
est levels of application into and integration of the core
production processes. Although there has been some
pioneering work done by customers and partners in
the production area, there remains great potential for
further use of SAP (including integration with third-
party products) in this critical part of the customers
business.
For the most part, mining companies buy SAP System
with a view to developing an integrated, enterprise-
wide (end-to-end) business system. They do not nec-
essarily expect the R/3 System to provide functional-
ity for all of the companys business processes, but
they do seek seamless, effective, and supported inte-
gration of existing, specialized systems into the ERP
system.
The SAP Mining Solution management program ac-
knowledges this potential and is based upon an end-
to-end solution tailored for the mining industry. Crit-
ical elements of the program include:
s A program of Complimentary Software Products
(CSP) focused on the mining industry
s Regional and global mining industry focus groups
and a customer engagement (collaboration) process
s Oil and Gas and Mining IBU solution software
development program
s A Mining Solution template
Figure 10 shows key elements of the SAP Mining So-
lution management program.
Figure 10: The SAP Mining Solution Development Program
The SAP Mining Solution does not detract from or
replace traditional mine planning, geological, and geo-
technical systems, but rather allows SAP System to be-
come an extension of these systems integrating them
into the rich business and logistics functionality of the
R/3 System. This current solution configuration and
scope has been developed in collaboration with a
range of current mining customers in Australia and
South Africa; many of these customers are global min-
ing companies. Some of the key principles that under-
lie the development of this solution include the fol-
lowing:
s The customer must drive business and business
process (systems) change. SAP business systems will
enable change and process improvement.
s Enterprise-wide systems change that includes core
production and mining processes is significantly
more involved than systems change in the
accounting and commercial processes.
s Effects on core production systems can be
minimized by using proven off-the-shelf solutions
and by correctly staging and phasing the project
implementation.
s Integration software will be easily configurable and
have sufficient flexibility to change with the
business.
s The use of people with in-depth knowledge and
experience of production work is critical to
applying enterprise systems technology to core
production processes.
s Mining customers perceive that the core production
area has very high potential for SAP systems
application. This area typically can represent about
80% of total business costs.
19
The SAP Mining Solution
With this holistic approach to enterprise information
systems, the systems picture for a mine and process-
ing site will emerge as shown in Figure 11.
Figure 11: Building a Mining Solution
Building the enterprise-wide system will affect the way
that people do their work. SAP systems, together with
the third-party products that make up the business
solution, will be implemented to ensure assimilation
into the workplace while obtaining the maximum pro-
ductivity benefit from the system features (such as
integration of information across business processes).
Figure 11 illustrates a progression of system imple-
mentation moving from the stand-alone specialized
systems, to business integration with common data-
bases and processes (moving inwards from the extreme
points of the triangle). It is a progression that allows
for systems learning in the workplace.
To help systems integrators, customers, and consult-
ants analyze a companys systems needs (through the
use of gap analysis, for example) and to develop a
picture of the likely enterprise solution, SAP has de-
veloped an industry solution map for mining. This map
is useful to customers, partners, and suppliers in a
number of different ways. However, its primary pur-
pose is to map the common business processes in the
industry and overlay the SAP Solution over the proc-
esses.
The solution map (see Figure 12) comprises the min-
ing value chain with its supporting or enabling high-
level business processes of enterprise management,
customer relationship management, and business sup-
port. This high-level view of the mining business proc-
esses is expanded on the second and third-level
business processes illustrated in subsets of the map (not
shown in this document).
Figure 12: The SAP Mining Industry Solution Map
The solution map reinforces the fundamental relation-
ship between SAP System and business processes. The
map documents business processes common to and
across the mining industry. In providing the basic
structure of the business processes or systems of work,
the map assists customers in:
s Determining key systems drivers for strategic
direction
s Improving company-internal and company-supplier
communications on business process discussions by
providing a common terminology and taxonomy
s Providing a framework for business process re-
engineering and whole-of-business continuous
improvement
20
The SAP Mining Solution
SAP Systems Integration
The primary features of systems integration include:
s All reporting on operations is based upon a
consistent data set resulting in one version of the
truth.
s The actual measurements from the systems at the
control level can be reconciled with the plan in SAP
to determine operational performance. Actual
against plan comparisons can be carried out against
production cost, effectiveness, people and
equipment utilization, and so on. This design
provides a closed loop between planning and
execution.
s Equipment breakdowns, picked up and known to the
control systems, can trigger a maintenance
notification in SAP System, resulting in a timely
response to equipment breakdown as well as
accurate collection of equipment performance data.
s Planning through SAP System balances equipment,
human resources, and material requirements.
s More accurate cost of alternative plans in a much
shorter time frame saving hours of manual costing.
s What-if analysis capability is added to planning
cycle due to tight integration between planning
systems and SAP System.
s Integration provides a real versus actual plan
evaluation for each production process.
s Mine block costing and characteristic-based
costing verifies and provides the cost and
production drivers used for process optimization
and continuous improvement, as well as providing
rapid economic cut-off grade analysis.
s Improved inventory control through material
requirements planning reduces cash locked up in
unnecessary stock.
s Quality control through monitoring intermediate
and final quality.
s Integration to process control and MES layer
systems using third-party products eliminates
manual intervention in highly mechanized mines or
controlled processing.
21
The SAP Mining Solution
Appendix A: Typical KPIs and Cost Drivers
PrImarv ActIvItIcs Sccondarv ActIvItIcs Cost BrIvcrs PcrIormancc Mcasurcs
0PEN PI1 MININ0 - BEVEL0PMEN1 5|Ha
Sife cleaiing Eecfaies Ea|d
1op soil kemove|Sfockpile BCMs BCM|d
Wasfe iemoval Piill|Blasf|Load|Eaul|Pump BCMs BCM|d
0PEN PI1 MININ0 - 0PERA1I0NS 5|BCM brokcn H haulcd, StrIppIng
RatIo
0iade Confiol Piilling mefeis m|l
Blasf Eole Piilling mefeis m|BCM bioken
Blasfing BCMs bioken Powei facfoi (kg|BCMI, emulsion . anfo
0iound Suppoif Cable bolfs $|sq m, suppoifs insfalled|wk
Load Ufilizafion $|opei li, buckefs|opei li, Ufilizafion
Eaul Eaul 0ie, Eaul Wasfe 1iuck loads 1iucks|sliff
Pif Pewafeiing Lifeis L|d
UNBER0R0UNB MININ0 - BEVEL0PMEN1 5|mctcr advanccd
Pewafeiing Lifeis L|d
0iound Suppoif kock bolfs, Manlouis Bolfs, Mesl, Manlis|BCM bioken
Pevelopmenf Piilling Mefeis m|d
Blasfing BCMs bioken BCM|d
Load Buckefs Ufilizafion
Eaul (oi slaffI Eaul 0ie, Eaul Wasfe 1iuck loads $|BCM mined, Loads|sliff, Ufilizafion
UNBER0R0UNB MININ0 - S10PIN0 5|BCM brokcn, haulcd|hoIstcd
0iade Confiol Mefeis, Samples Mine Call Facfoi (mine giade|mill
giadeI
0iound Suppoif kock Bolfs, Manlouis $|mefei diilled
Backfilling Eydiaulic Fill kock Fill f|l, fill densify, $|f of fill
Blasf Eole Piilling Mefeis $|mefei diilled, m|d|iig
Blasfing BCMs bioken $|BCM bioken, powdei facfoi
Load 1iuck loads $|opei li, buckefs|opei li
Eaul Eaul 0ie, Eaul Wasfe 1iucks loads Loads|sliff, Ufilizafion
RUN-0F-MINE S10CKPILE MANA0EMEN1 5|t mIll Iccd
Sfockpile Foiming Loadei Buckefs Buckefs|f mill feed
Secondaiy kock Bieaking 1onnes f|f mill feed
kelandling (iemofe sfockpilesI 1onnes $|f ielandled
Eandling u Blending 1iucks Ufilizafion
0RE PR0CESSIN0 5|t mIll Iccd
Ciusling Piimaiy, Secondaiy u
1eifiaiy
1onnes, Ufilizafion f|l
0iinding kod Mill + Ball Mill Powei, Sfeel,
Ufilizafion
kWl|f, kg|f
SA0 Milling Powei, Sfeel, Ufilizafion
Ball Milling Powei, Sfeel, Ufilizafion
22
The SAP Mining Solution
0RE PR0CESSIN0 5|f mIII Iccd
1hickcning Lcaching, ClL|ClP, SX|FW cfc Rcagcnfs, SampIcs,
Powci
kg|f vaiious inpufs
FIofafion Wifh icgiinding fph, dcnsify conccnfiafc giadc, iccovciy
FiIfiafion Wcf fonncs f|d
1aiIings PisposaI BackfiII pIanf Pcnsify, fonncs f|d
C0NCEN1RA1E HANBIIN0 H C0N1RAC1S ABMINIS1RA1I0N 5|WM1; Ncf RcaIIzabIc VaIuc|f orc
Conccnfiafc Piying Wcf fonncs f|d
Conccnfiafc EauIagc 1iuck, RaiI Wcf fonncs f|d, f invcnfoiy
Ship Loading Wcf fonncs f|h
lnfuin Assays SampIcs giadc, moisfuic, diy fonncs
0ufuin Assays SampIcs smcIfci adjusfmcnf
REHABIII1A1I0N 5|sq m
Faifhwoiks, diainagc, fopsoiI, icvcgcfafion sq m Wafci iunoff pE, non compIianccs|y
MAIN1ENANCE Woik 0idcis 5| f mIncd, mIIIcd
PIanncd, coiiccfivc, cmcigcncy mainfcnancc PMs, CMs % CompIcfc, BackIog, PM|1ofaI iafio
PIanning u schcduIing M1BF, M11R Mcan fimc - bcfwccn faiIuics, fo icpaii
PIanf and McchanicaI avaiIabiIify
ABMINIS1RA1I0N 5|pcrson
Safcfy, fiaining, puichasing, sfoics, fownship, l1,
accounfing
Vaiious L1lFR, 1uinovci, vaiious ofhci
23
The SAP Mining Solution
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Neurottstrasse 16
69190 Walldorf, Germany
Mailing address
69189 Walldorf, Germany
SAP information service
Tel. +49 (180) 5 34 34 24
Fax +49 (180) 5 34 34 20
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www.sap.com
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