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Xstrata holdings in Australia is a major mining company that mainly deals with the mining of coal. Over the past years, the change in management strategies has led to some evident challenges within the organization. This has in turn led to some challenges in the operations department. Therefore, the operations department has to have everything under control to ease the running of the daily activities of the firm.
One major challenge that the firm faces is technological. Drilling the ground requires hard substances. The deeper one goes the harder and more complicated the ground gets (Ralston, 2014). Advancement in drilling equipment over the years has led to some of them being obsolete thus they can no longer be used (Thwaites, 2008). This factor slows down the operation efficiency in that not enough coal is mined. It then becomes difficult to match the demand created by the customers, within the expected time limits. To circumvent this challenge, proper acquisitions need to be made, so that the latest and most efficient drilling equipment are bought and used on the mining sites. The use of these new machines will also boost the employees’ morale thus enabling them to work harder and deliver fast results (Trist, 2013). The operations department will need to collaborate with other departments in order to achieve this goal.
The globalization of markets is continually growing at a fast rate worldwide. However, not all countries that trade globally are comfortable with doing so. Relations between different countries have often raised concern due to misunderstandings and perhaps sabotage. For example, very few countries are at liberty to trade with North Korea due to the threats that its leader has made of using nuclear weapons on North Korea’s enemies (Hirst, 2015). This makes running operations in such countries difficult due to the hostility presented by such leaders (Thwaites, 2008). Another problem posed by the globalization of trade markets is that the super power countries want to control the international markets for their own benefits (Cavusgil, 2014). This hinders operations in that every participating country would want a share of the control. Continual conflicts over the matter have presented scuffles among such nations. Consequently, global trade is halted for a considerable period. Millions are lost in the process and the operating capital becomes inadequate to fund the activities that the operations department needs to propel its profit making ventures (Waring, 2005).
New needs are developed every day by the customers (Oliver, 2014). Along with the customers’ needs comes environmental changes such as global warming. Coal has been a major pollutant for a long time, and this factor disrupts the ecosystem. Most firms are obligated to keep their environment safe. It is for this reason that customers are opting to go for environmentally friendly sources of fuel in the quest to go green. Major companies are also following suit. This shift has had an adverse impact on the coal mining industry, since demand for coal is declining considerably (Thwaites, 2008). If the trend is sustained, then the operations department will eventually have nothing to operate on because of no demand for coal. This challenge, however, can be overcome through the development of newer uses of coal that are environmentally friendly. Customers’ needs are also influenced by the current trends in the market (Kärnä, 2014). These trends come and go rapidly hence, they cannot be controlled by a singular individual/firm. The operation managers need to know what these trends entails. Thus, they collaborate with other departments to form strategies. They would then use the strategies to fit the use of coal to these trends before dispatching it into the markets accordingly.
Professionalism is a key issue facing by several firms. This is due to the working habits portrayed by the millennial generation (Sweet, 2015). Recruitment of personnel in their respective departments is a formidable task. It requires careful selection so that the firm’s operations run smoothly. The millennial generation is well known for shifting from one job to another within a short period (Waring, 2005). This hinders operations of the firm in several ways. For example, the task left undone by one individual at the time of his/her departure may be left for a new employee. This may create a backlog in the task hence the operations of the firm would be set back by a few steps. This slows down the rate of operations as planned by the operations manager. Professionalism is also affected by the job designs present in our current setting (Tims, 2013). Jobs in the contemporary setting are centred on experience, rather than the capabilities and education level of the potential employee. The greater the experience an employee has, the better he/she will be at performing his/her functions in the firm. This will lead to more efficient running of the firm’s operations. Operation managers are therefore greatly influenced by the job designs present now in the market (Waring, 2005).
Xstrata Holdings has operations in many different countries around the world. Different countries present different opportunities for the firm depending on how Xstrata’s products will be applicable to the citizens of these countries (Sirkin, 2014). Operating in foreign countries depends on different factors. The challenges the operations managers deal with in such countries include the strange forms of activities that the firm’s employees undertake in foreign land. This causes alarm to the natives of the foreign land (Thwaites, 2008). Some of them even stop the running operations. In effect, they stop the firm from doing any more exploitation entirely. They see foreigners as hostile people that might harm them in one way or another. This perspective may be caused by the hi-tech machines used to drill the ground (Shao, 2014). Coal is also not universally used due to the worldwide initiative to go green to conserve the environment. Therefore, the operation managers cannot operate in such countries. They will be endangering the government. It is no doubt that operations in such countries will cease due to the respect that they should have for other’s property.
Quality is a major aspect of every manufactured product (Goetsch, 2014). The quality of coal is measured by the intensity with which it releases carbon dioxide in the atmosphere. According to global standards, there is a permissible amount of carbon dioxide that can be released in the atmosphere. Xstrata’s engineers have this in mind hence they mine high quality coal that emits the lowest amount of oxygen when burnt. The challenge faced by the operations managers in this case is the quantity of coal mined which meets the required quality standards (Goetsch, 2014). This type of coal is small in quantity. Therefore, the engineers have to dig through large amounts of useless coal before they reach that of the desired quality. The operations manager, in collaboration with the civil engineers, therefore need to determine the specific spots where this type of coal can be found. After this, they should then develop strategies that would focus on mining at these specific sites (Thwaites, 2008). This will ease operations through saving time and the efficient management of the firm’s resources. Another challenge is the compliance with international regulatory bodies that check on the quality of the products the firm manufactures. The operation managers need to present the relevant certification to these bodies in order to continue with the firm’s operations.
Xstrata operates within the mining industry. As such, the key issues affecting it will be those that will have an effect on the mining industry. The key challenges affecting Xstrata have already been discussed. These challenges can be overcome by engaging in astute operations management practices, with a principal focus on four areas of operations management that will have the largest impact on the success of Xstrata. These four are resource management, quality management, process selection, design and analysis, and managing inventories. The criticality of each of these areas on the success of the organizations is described.
Resource management will comprise arguably the most important operations management issue for the mining industry. This aspect of resource management essentially entails the maximization of efficiency and effectiveness in an organization’s use of its resources. It is an important component of organizational management because organizations do not have an unlimited pool of resources at their disposal (Wilson et al., 2013). Organizations such as Xstrata typically rely on a wide range of resources to enable them to realize their organizational objectives. Such resources include facilities, capital, human resources, IT capabilities, and financial resources. Mining companies like Xstrata have intensive resource requirements, especially in terms of capital and finances. The absence of such resources would thus constrain the ability of Xstrata to achieve success.
The need for resource management stems not just from the necessity of such resources, but further, from industry trends. One such trend is the waning price of commodities. According to Latimer (2016), the mining industry has been suffering from depressed prices. The poor financial outcomes have detrimental outcomes for companies such as Xstrata. This is because a poor financial outlook translates into an organization having trouble in acquiring the resources it requires. Resource management emerges as a plausible and efficient solution through which Xstrata can overcome this barrier, thus improving its potential for success. First, through resource management, the organization is able to achieve organizational objectives using the available resources. In a different way, by improving the efficiency and effectiveness of resource utilization, resource management leads to lower overall costs of production. Here, the two outcomes that resource management achieves is that first, where there is a shortage of resources, resource management facilitates an avenue through which the organization nonetheless attains its goals. The second outcome is that even where the shortage of resources is not the issue, resource management enables an organization to realize cost savings.
Resource management further contributes to organizational success through its contribution to operational excellence. Latimer (2016) indicates that one of the prevailing themes in the mining industry is belt tightening. Such belt tightening enables organizations to reduce the costs of their operations. The lowered cost of production and improved cost efficiency contribute to productivity improvements at the enterprise level.
Resource management is also important in ensuring that critical organizational resources are protected. Wilson, Hill, & Glazer (2013) indicate that some of the resources in an organizational are usually critical. Examples would include a corporate aircraft or resources used by outside companies or contractors. Consequently, it is important to take care of such resources. In the context of mining, it is important to ensure regular and routine maintenance of resources such as equipment. In this regard, resource management is closely related to maintenance management, which is essential in correct decision making particularly in capital-intensive industries (Simoes et al., 2011). This would help the organization to avoid unnecessary downtime. In the long term, the resource management of these types of resources also contributes to the success of the organization, by avoiding sunk costs or opportunity costs that may be associated with damages or downtime.
The second important aspect of operations management is process selection, design, and analysis. This aspect is characterized by a meticulous determination of the processes to be used for production, or in this case, mining. It is important for organizations such as Xstrata to select the most effective production processes, as this will enhance organizational efficiency and contribute to success.
The implicitness of process selection in guaranteeing organizational success is underscored by important trends that are affecting the mining industry. One such trend is changes in the quality of the ore, whereby high-grade ores are becoming depleted (Prior et al., 2012). Thus, according to Shaffer (2014), there is a consensus amongst experts that productivity is the most important issue that is affecting miners. Consequently, organizations have to make a choice between mining low-grade ores or shifting operations to remote regions. With either of these alternatives, careful process selection is essential in guaranteeing success.
Granted the above two scenarios, the centrality of process selection and design to organizational success can be described as follows. First, with low-grade ores, there is a need to extract as much of the desired ore as possible. This is vital in ensuring that the mining process continues to be feasible (Shaffer, 2014). Organizations such as Xstrata must therefore explore ore bodies to determine whether they are economically viable to exploit (Bjørndal et al., 2012). Moreover, they need to choose methods of production that optimize on costs, given that ore characteristics can have an adverse impact on energy consumption (Morkun & Tron, 2014). Secondly, where organizations choose to shift operations to those areas offering high-grade ores, there is a need to redesign production processes to suit those areas. Shaffer (2014) points out that some of these areas are characterized by harsh climates or unfavourable political circumstance, making transportation and housing of workers a risky affair. Some of the process redesign responses that could be useful in manoeuvring such scenarios relate to the use of processes such as automated sampling and analysis instrumentation techniques requiring few personnel (Shaffer, 2014). In this regard, innovation has an important role to play in process selection and design.
The role of process selection, design, and analysis in improving the success rates of organizations is further enhanced by innovation. Some of the key elements of innovation include automation, mobile technologies, and enhanced drilling systems (Latimer, 2016). A majority of innovations pertain to automated and semi-autonomous processes. Some of the outcomes that have been associated with innovation include a reduction in the intensity of people, capital, and energy. The decline in the requirement for people is perhaps a good outcome, considering that it is complementary to the earlier indicated challenge of the depletion of good quality ores. Thus, continual innovation has the capacity to promote the success of Xstrata, by providing avenues that will facilitate Xstrata’s exploitation of minerals in areas where prevailing conditions may not favour a human labour force.
Quality management is another key ingredient to the success of Xstrata. Quality management is a process through which the management of an organization endeavours to ensure that it maintains the standards of excellence. Within the context of Xstrata, quality management is an important step in ensuring that the company meets the obligations of its stakeholders. One of the primary reasons why quality management will emerge as an increasingly important imperative is due to the above-cited factor of a decline in high quality ores (Shaffer, 2014). The consequent reliance on low quality ores make it more difficult to ascertain the quality of the product. It is for this reason that quality management practices will become more prominent in determining the success of Xstrata Holdings.
There is also a close link between quality management and environmental protection. According to Parast & Adams (2012), there is a belief that companies, which implement quality management practices, are more likely to deal with issues of the environment and public good. With the shift in consumer preferences towards environmentally friendly preferences (Thwaites, 2008), environmental conservation is an important imperative. Consequently, the establishment of environmental management systems typically goes in hand with quality management systems (Escanciano & Iglesias-Rodríguez, 2012).
Finally, Xstrata will also need to engage in a meticulous process of managing inventory. Inventory management is important in mining companies, least of all not because of the asset-intensive nature of their operations. According to Benders (2011), for companies within industries such as mining, the visibility and availability of key parts is crucial. In many instances, companies such as Xstrata will have only one or two machines performing mining operations. Hence, the breaking down of one machine can lead to downtime, a factor that had earlier been mentioned. Consequently, in asset heavy organizations, items such as spare parts take precedence over commodity items when it comes to inventorying. The only problem is that this approach can entail very high inventory costs, which would then diminish margins. Doing away with the inventory is, however, not a viable alternative because the company may experience significant downtime if there is production downtime due to the removal of critical parts from inventory (Benders, 2011). Consequently, managers must decide on the best approach, which will optimize on the trade-off between the two.
The above assertions by Benders (2011) aptly illustrate the significance of managing inventory in the success of Xstrata. Managing inventory allows the firm to identify an optimal trade-off between the costs associated with keeping inventory, and the cost associated with not keeping it. The need to optimize costs is underscored by yet another factor that has already been discussed herein, that of diminishing returns. As it has been noted, one of the key trends affecting the mining industry is a depression in prices (Latimer, 2016). Consequently, miners are struggling to survive, which has in fact led to a tendency for mining organizations to go lean. Given the lower returns, it is evidently essential for mining companies to manage inventory.
To tackle this challenge, Xstrata should chose a suitable inventory management approach. For instance, in this particular scenario, the company may opt for a VED classification approach where it will identify the most vital inventory items (Panneerselvam, 2012) and target these for inventorying. This approach allows an organization to classify spare parts based on which items are the most critical and which are simply desirable (Van Kampen et al., 2012). Consequently, Xstrata can then determine the most important items and store these to avoid downtime, while at the same time ignoring less critical components thus lowering inventory costs.
Xstrata is a leading mining company in Australia. The mining industry in Australia, as well as globally have been affected by a number of business trends. First, there is the current position of the mining industry in its cycle. The mining industry is currently at a low point, but due to its cyclic nature, is bound to bounce back (Latimer, 2016). Nonetheless, if the industry has a cyclic nature, the implication here is that eventually, the industry will face a dip again. Another trend is the slowing down of the Chinese economy. China is an important global driver of consumption not just through its direct purchases of iron, but indirectly since, it has an extremely high demand for raw materials (Shaffer, 2014). Consequently, the recent slowing down of the Chinese economy has had an adverse impact on mining companies, due to lowered demand (Latimer, 2016). This has led to an oversupply of minerals, thereby diminishing the financial returns through lowered mineral prices. These are just some of the issues affecting the mining industry.
If Xstrata is to remain on its path to success, it needs to focus on four areas of operations management. The first is resource management. Resource management is important in light of the above challenges, since it portends greater efficiency and lower costs of achieving organizational goals. The second area that Xstrata needs to focus on is process selection, design, and analysis. This aspect is important because it allows the organizations to choose an optimal approach of doing things. Thirdly, Xstrata also needs to focus on quality management. Quality is one of the key considerations for customers when considering a purchase. The need for quality management is underscored by the potential necessity for mining companies to exploit low quality ores. Finally, Xstrata will also need to focus on managing inventory. Xstrata operates within the mining industry, which is a high asset industry. Such industries usually have unique inventory requirements, due to their heavy asset requirements. Managers need to choose whether to store inventory or to avoid inventorying, since each of these approach has its separate set of associated costs.
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