Of course data on maintenance times and breakdowns and other issues provide part of the answer, but this never explains the total situation. The reasons for much of the lost capacity are intangible (it’s hard to put your finger on the reasons).

In all businesses there are opportunities to increase capacity. This is a continuing process in which managers constantly seek out areas where improvements can be made within the business and in relationships with suppliers and customers.

These views are reflected in calls by the Institute of Management Accountants in the United States to change accounting standards to reflect the influence that Lean Thinking has had on manufacturing enterprises in that country (www.imanet.org). Quantification of the sought after improvements would provide accounting information on the potential of the business that can be presented on the company balance sheet.

This idea is not new. Peter Drucker, recognised as a key player in the development of modern management thinking, argued years ago that static financial accounting did not provide the necessary information for a business to survive in a competitive globalised environment.

Companies, he said, could only know and manage “price and value” led costing of their products when they understood and managed the entire cost of their economic chain. He asserted that if managers were to achieve this they had to be prepared to account for business “intangibles”. But, what are intangibles?

Intangibles tend to be hidden in the interactions or transactions that occur between people and between people and machines. They are dynamic events, decisions or actions that are constantly occurring in a business enterprise. So it is not surprising that in many cases no one really knows the root causes of lost capacity.

The management of intangibles is concerned with improving interactions between the people in the value chain of the business so that more value can be created. What is intangible must become recognised for its importance.

Traditional cost accounting does not deal with the intangibles, as it does not report the costs of lost capacity and inefficiencies contained in internal or external value chain work systems.

Focusing on Intangibles

The table (click here for table). illustrates a hierarchy of transactions in a business in which intangibles have to be managed.

The following brief case studies aim to illustrate the management of intangibles.

Functional Work

In measuring bolting cycle times by crews on a continuous miner it was found that there were large differences in the times taken to drill and bolt mesh by the miner driver compared with the offside bolting operator (differences in ability between operators are commonly observed).

In fact in several cases the miner driver completed the drilling and bolting sequence in half the time as his fellow operator. This meant that he spent a great deal of his time waiting. His superior skills were being wasted.

As a solution, it was suggested that the capability of the crew would be enhanced if operators with similar skill levels were paired. This was tried and as a consequence some crews managed to achieve an extra five metres advance per shift.

Teamwork

Longwall crews were having considerable trouble in maintaining the tailgate. Despite all attempts the situation continued to worsen. In observing crews across shifts and talking to them it was noted that each crew interpreted the meaning of the same conditions in a different way. Each took different corrective actions in attempting to fix the situation.

There was no agreed method regarding how the tailgate should be cut. As a solution, the crews were brought together where they agreed upon a common approach to interpreting conditions and used a standard operating procedure to cut the tailgate from that time. Thus what had been intangible to management and crews had become known and managed.

Cross-Functional Integration

In this case study, there were continual disagreements between longwall crews and members of the longwall supply function. Each group had quite different expectations about how supplies should be managed. One group’s ideas were seen as adding unnecessary work for the other group. Each group used their own measures of success to judge what was right (for themselves).

The situation only improved when a method that was demonstrably the best for the business overall was developed, trialled and agreed upon.

Supplier and Customer Management

In this case study, there were continual disputes between contractors and various managers in a mining business. The source of the trouble was that the work cultures and mining methods used by the two groups were at odds. The situation did not change until a range of best practices was explicitly defined and agreed upon.

Indeed the improved alignment of work cultures and mining methods brought about mutual benefits for the mine operators and the contractors.

The corollary is that problems of this nature can be minimised even at the time of contract preparation. Alliance-based contracts that recognise and address the intangibles such as differences in work cultures and operating methodologies will greatly advance the value-adding capability of business relationships from the start.

Conclusion

The mining industry is very much involved in the continuous improvement of its operational processes and to this end utilises specialists in Six Sigma and Lean Thinking methodologies.

But mine management needs to engage a greater range of the people in the management of intangibles of the business. A distinct opportunity is to change internal accounting standards to reflect the ideas embraced in these continuous improvement processes. This would focus on providing accounting information that quantifies the sought after improvements and the potential of the business.

The benefits of improving the capacities of mines are there for the taking.

*john.winchester@farwest.com.au