Qmont Mining Case

Qmont Mining Case

As a major metals producer based out of Vancouver, British Columbia, Qmont Mining has successfully grown over the years resulting in extensive operations across northern Canada. Qmont Mining has had a decentralized structure and uses its own drilling crews for security, availability, cost, and control purposes rather than contracting out. This requires that the company manage its own inventory and to do so it relies on bush planes on floats and helicopters to bring in required supplies and inventories to the remote locations. However, the company has been considering a move towards more centralized management of supply. The supply needs are specifically maintenance, repair, and operating (MRO) supplies. The company's operations include 17 remote locations, comprised of small mines, mine start ups, exploration sites, and development projects with varying distances in between (the farthest sites are around 5000 KM apart). The small mines employ a buyer and storekeeper on site, there are 9 exploration sites in total with expected (unproven) ore potential and 3 development projects with proven mineralization potential. This shows that Qmont Mining is continuing to grow its operations within the metals and minerals industry, with considerations for the potential improvements the company can explore for efficiency and resulting profits.

Problems

        A key problem Qmont Mining is facing is the need to improve the overall way the company handles supply for remote locations. This stems from both inventory problems and the associated accounting problems. The company has a need for fast inventory delivery when a drill breaks, as drill and crew downtime can be very costly. The company has a decentralized supply management structure, with several different people in the supply management chain ordering from many different suppliers and not frequently keeping the best supply ordering records.

Short Term Problems

        The most prevalent short term problem is operational and one of trouble avoidance. Although the focus has been on trouble avoidance, there is a need to gain better control over immediate supply requirements and a need to gather more information on the supply process. The resulting problems in the supply ordering process (or lack thereof) includes purchasing and logistics. The need for maintenance and repair parts often arises suddenly, as the equipment and machinery breaks or becomes in need of repair. Drilling crews often order the same part from multiple suppliers in an attempt to get the part as quickly as possible. There may also be a difference in supply needs between the different type of operations at the different mine sites (start up mine or exploration sites, for example). The redundancies of parts ordering, the associated air freight costs, and a lack of relationship with suppliers creates a costly problem in the short run that, if not remedied in the near future, contributes to and creates long run problems. The short term problems arise from a lack of a clearly defined and well communicated standardized purchasing and supply chain management policies and procedures. The short term problems create a long term effect on profits, supplier relations, and operations.

Long Term Problems

        The long term problems are strategic and can be considered opportunistic. The company’s inventory problems result from a decentralized supply chain management and a lack of strategic sourcing. This is a long term problem because of the time frame required to fully change from a decentralized supply management structure to a more centralized supply process takes time. The long term problems Qmont is facing have long lasting effects on profits, competitive position, efficiency, and stakeholder satisfaction. At one point in the previous year, there were 22 instances of supplies being delivered within days from different suppliers to the same site, these supplies happened to be all the same items. There was also a total of 14 different instances where the airfreight costs were 10 times higher than the total value of the supplies being delivered. Over the previous years, invoices have been paid to suppliers without confirmations of orders, deliveries, or even receipts. These are problems within the supply network and a lack of solidified value-adding procurement processes.

Goals

Quality

        The company should aim to acquire high quality parts for maintenance and repair to reduce the need to order supplies. Quality should always be a top priority to decrease the amount of repair parts needed and the costs associated with parts frequently needing repair.

Quantity

        The company should aim to focus on adding value to supply orders. This involves scheduling a delivery with the goal of having the supplies value amounting to a greater value than that of airfreight costs.

Pricing

        The company should practice strategic sourcing to develop long term supplier relations and to create a valuable pricing agreement. The goal should be to acquire valid information sources in regards to pricing. Wherever possible, and without sacrificing quality, the company should aim to secure lower prices for supplies.

Delivery

The goal is to find a valuable balance between the need to have parts delivered as quickly as possible as when machine parts break or require maintenance and other non immediate MRO supplied.

Service

        The company should aim to focus on streamlining and organizing services. The goal is to find a supplier that provides exemplary service that is timely and of high quality. Excellent communication and accurate record keeping are key in the service requirements.

Facts

Porter’s Five Forces

1) The rivalry amongst existing firms is moderate.  Although Qmont Mining is a major metal producer, it has relatively less competition in Canada when compared to the global industry. Thus, global competition is the number one threat towards acquiring investment capital.  For mining industries, competing for investment depends on how well and how competitive their projects are. In regards to Qmont Mining’s issues with their current value chain process, investors may lose interest if it starts affecting their return on investment and makes Qmont less competitive.

2) Supplier power is considered to be high because Qmont Mining has to rely entirely on suppliers since the company cannot produce its supplies itself. Even though Qmont has a large choice of suppliers, there are still issues which remain. Due to a lack of an official contract between Qmont and its suppliers, Qmont will have little control in resolving problems when they occur. For example, consider an exceptional situation like a natural disaster, which leads to a delayed service or a loss of materials being delivered, this situation would not be managed smoothly because each party does not know the plan of action in advance. Therefore, it is going to cost Qmont more than the benefits that they will get. The other issue is, due to the remoteness of the site locations and the lack of transportation options, Qmont may need to choose the closest suppliers and/or the suppliers who they know will serve them faster to keep their operations going.