June/July 2009

It's time to talk about the relationship

Future growth will depend on strengthening bonds along the supply chain now

By R. Bergen

Photo courtesy of Boart Longyear

The mining industry can be quite a fickle beast. To its credit, it is certainly tough. For anything to survive and thrive as long as it has, it must be. And it can undoubtedly be tenacious. In what seems like a flash, it can heave itself up and go on a hungry tear, pulling hard at the supply chain, testing the solidity of its links. Then, seemingly as quickly as it set off, it lowers its head and retreats — or seems to.

Few of the suppliers or purchasers who must face the temperamental demands of the industry can be too surprised by the recent market extremes, but that does not mean that they have not been tested by them. The latest charge overextended many, stretching lead times for the delivery of vital equipment and support services to record lengths. The corresponding slowdown has shifted the focus inward to challenges such as managing costs and reorganizing and refining business practices. It has also given those along the supply chain an opportunity to take a step back to evaluate the recent frenzy with a critical eye, and to consider the future.

Riding the highs and lows

The cyclical nature of the mining industry may be a constant, but each surge and slump has its own character — and its winners and losers. According to Marc Duchaine, Vale Inco’s head of strategic procurement for North America, the enormous proportions of the current cycle are central to defining it. “To me, this low is similar to the previous high,” said Duchaine. “During the boom, there were many new players and the demand became truly global. And I think it is the same with this downturn; it too is global — there are no areas that are being spared by it — so the effects are even worse.”

Bruce Knight, president of SMS Equipment — the enterprise that was born last year from the consolidation of Coneco, Federal Equipment and Transwest Mining Systems — has ridden a few waves over his career. The marketplace, he agreed, has gotten bigger, and the new scale creates new challenges. “I believe one of the key differences between the current downturn and the one back in the early to mid-1980s is that at least then, if you had good used or rebuilt equipment, you could sell it offshore to what at the time were referred to as Third World countries,” said Knight. “Today, many of those countries are running state-of-the-art fleets. They’re utilizing new equipment and not as much used or ‘tired iron,’ so the ability to move that equipment to some of those areas is a lot tougher. Many of those underdeveloped countries are now direct competitors with the Canadian mining companies.”

Still, there is cause for optimism, suggested Guff Muench, president, Western Canada for engine and power system manufacturer and distributor Cummins. “The big difference I think right now is that interest rates are really low,” observed Muench. “So for those of us who gambled on inventory, we are not being punished the way we were in previous recessions. If you had a lot of inventory, you got killed by your carrying costs. Businesses that are carrying extra inventory now are luckier.”

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