Dec '14/Jan '15

Step change vs. operational excellence

Metallurgy debate hopes to spark wider discussion

By Ian Ewing

A friendly but vital debate took place at the plenary discussion at the recent Conference of Metallurgists 2014, held in Vancouver from Sept. 28 to Oct. 1. Four metallurgy industry experts tackled the question of whether companies are better served by striving for operational excellence – making small changes to tweak current plant designs and processes – or pursuing technological step changes.

As Boyd Davis, the COM 2014 conference chair and debate convener (as well as president of Kingston Process Metallurgy), put it in his opening remarks, “This is especially current given the number of large capital projects that have experienced significant cost overruns this decade.” That track record, he noted, has prompted companies to turn inwards for revenue increases through operational improvements instead of investing in capital projects or new technologies. But how will this reaction affect the long-term success of the industry?

Nils Voermann, the global managing director of technologies at Hatch, and Jean-François Turgeon, executive vice-­president of Tronox, argued the value of technological step change. For the operational excellence side were P.J. Mackey Technology president Phillip Mackey, and Michael Agnew, principal at Michael Agnew Inc.

Where should companies put their money? You can decide, based on the arguments made during the debate.

Improving performance

Step change: While the proponents of step change technology are not opposed to the idea of operational excellence, they argue that there are limits to what it can achieve. “Only new technology can enable a significant step change in productivity, financial performance or environmental performance,” notes Voermann.

Operational excellence: Mackey and Agnew concede that huge leaps in performance will require new gadgets, but note that a poorly run plant is in no position to attempt using new technology anyway. “Operational excellence is a prerequisite to the evaluation of options before implementing change,” read one of Mackey’s slides. “At the very least,” adds Agnew, “it provides a solid baseline to evaluate options and is essential for a smooth implementation of change.”

Competitive environment

Step change: “Our colleagues in the Far East are much less afraid of new technology – trying new things, and if it doesn’t work, fixing it and getting on with life,” says Voermann. “We work in a competitive environment, and we have to think about what others are doing and make sure we’re technologically ahead.”

Operational excellence: A lack of step changes is not what is holding back many operators. Plants must renew their assets, even ahead of step changes, says Mackey. Equally important, he notes, are renewing the skills of the workers: “It’s disappointing that some of the new owners of plants in Canada don’t seem as interested in getting their operators to conferences.”

Time pressure

Operational excellence: The timeline to development is an important issue, argues Agnew. “It’s difficult with a cyclic industry like ours to maintain an initiative [like speeding technological development]” for 10 or 20 years. And new technology, even if it does eventually work, can take a long time to ramp up. Improving operational excellence, on the other hand, follows a relatively simple set of guidelines and principles that can be implemented at minimal cost and nearly immediately. “As a shareholder, wouldn’t you like to read in the annual report: ‘The EBITDA of our company increased due to operational improvements at the plant and higher throughputs?’” Mackey asks. “You get your dividend, and the share price goes up.”

Step change: “Our business is cyclical,” agrees Turgeon, “but the last place you want to cut when you’re at the bottom of the cycle is in R&D.” At the top of the cycle, he says, when you are flush with cash, you cannot suddenly spend more in R&D and expect a proportional return on investment. “You better invest with a stable base in R&D. If you kill it when you’re in a down cycle, you destroy your business. Yes, it’s difficult, but if we want to have successful businesses, we have to believe in it.” It does take a long time to implement and scale up new technologies, says Voermann, adding, “Therefore the process has to be started now if it’s to happen in 10 years.”


Operational excellence: A major reason companies hesitate to invest in new technology is the risk of failure after spending millions of dollars on a wrong-headed research project. “We see people get wide-eyed about some chemistry or some physical thing,” notes Davis, “but they spend too much time focused on that one element, without looking at the big picture early enough.”

Step change: People fear long and uncertain schedules, blown budgets and uncertainty about the benefits, agrees Voermann. “Risk can be managed, though,” he says. Looking at the track records of individual projects, he explains, the data demonstrates the importance of risk mitigation, not that new technology should be avoided. “The risk has to equal the reward, but if we just assume that all risk is to be avoided, we will stay stuck where we are with 100-year-old technology,” he contends. Turgeon points out that good project management, like using a stage-gate approach, can help ensure money is spent wisely.

Directing the talent

Operational excellence: Attracting and keeping key staff are the most important things a plant can do to achieve operational excellence, says Mackey, who recently visited several plants around the world and is now reporting on his findings. He says maintaining a high level of training, upgrading old equipment, and doing energy audits can all minimize long-term costs and maximize a plant’s operating factor.

Step change: Tronox’s pigment plant in Hamilton, Mississippi is already one of the lowest-cost plants in the world, but the company wants to improve. Putting aside a small, permanent team to focus on step change is one way the company prepares itself for the future, says Turgeon: “What can we do differently to really change the dynamic, change the position of the facility, to make sure the plant will be there in 10 years?”

In conclusion

All four experts agreed that a balance is needed between the two strategies. “People might be thinking that operational excellence is the default position and happens when we do nothing, all by itself,” points out Agnew. “That’s not the case. You have to work hard at it.” But, Mackey adds, “You would, if you were smart, [also] do some R&D.” He hopes the climate in industry will swing back to renewed investment in R&D because if it does not, he expects to see western plants close as companies fall behind their global competitors.

The debaters were also in agreement about the ideal funding model for research, settling on joint industry and government initiatives. “Government has figured out recently that research and staying ahead in technology is a competitive advantage for Canada, and that some of the tax dollars that mining companies pay should be reinvested in that,” says Voermann. “But if the government funds it alone, you can get off track. To have industry literally buy in is a good way of doing it.”

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