Mining downturn bad news for OEMs
As the protracted downturn in mining keeps original equipment manufacturers on the back foot, Guy Richards reports on new research that could add to their woes.
These are tough times for mining original equipment manufacturers (OEMs). With many commodity prices remaining weak, miners are cutting back on investment in new on-site equipment and are looking for ways to get more out of the kit they already have.
This is, of course, having a knock-on effect on the OEMs, with major players such as Caterpillar and Joy Global being forced to lay off hundreds, if not thousands, of staff and close or consolidate facilities as they battle to cut their own costs. Caterpillar says it is cutting 4,000–5,000 jobs by the end of 2016 and that, by 2018, the figure could be more than 10,000 – about 9% of its total workforce – although it doesn’t say whether that is just in its mining operations or includes its construction arm as well. For Joy Global, union officials say the number of workers at its manufacturing operation in Milwaukee, Wisconsin, has halved in the past three years, although actual numbers are not available.
As if that wasn’t bad enough, recent research shows that OEMs risk losing market share to independent third parties. The research, by business information provider Timetric, is broken down into regions around the world, so actual results from those polled – purchasing decision-makers at operating mines – vary from one region to another.
By way of a snapshot, and taking Europe and the former Soviet Union as an example, 27% of mines are using third parties solely for non-strategic parts such as hoses, lights and minor components that would not have a direct bearing on the performance of a machine, while 39% are using a combination of OEMs and third parties. Further, OEMs are used by 60% of mines for strategic parts – engines, transmissions and scoops, for example – while 66% use them to process equipment needs.
However, according to Timetric’s lead mining analyst Clifford Smee, the risk of losing market share is global, and the reasons are twofold – availability of spares and after-sales service. ‘Across the globe, 41% of respondents cited parts availability as a key improvement area, and where this is the case it will only encourage miners to look beyond their OEMs for parts,’ he says.
‘While the issue of spare parts was a key issue identified by respondents across all regions, it was nominated by a much higher portion of respondents in North America and Australia, at 51% and 49% respectively. By contrast, for respondents using third parties, the rate of parts availability became less of an issue.
‘For after-sales service capabilities, there was a mix of results, with some OEMs performing well in some regions but not others. This factor can be a proxy for how well each OEM can service its customer base, and it was a particular issue for remotely located mines,’ Smee says.
A chink of light
There is some comfort to be had for OEMs, though. The work shows that they have a dominant share in the segment for strategic parts, and that they are more likely to be the suppliers of choice for underground mines, for equipment such as longwalls, which third parties find difficult to supply. Third parties, however, are used a lot more for surface mines and have a ‘significant’ share in the segment for non-strategic parts.
Respondents also have no issue with OEMs’ actual product quality. ‘It is important to note that product quality and reliability is the number one factor that equipment buyers consider when purchasing equipment, and the major producers such as Caterpillar and Joy Global were widely praised for their product quality,’ Smee says.
In conclusion, and based on respondents’ comments, Smee says, ‘The most important steps OEMs can take to reduce their risk of losing market share would appear to be providing more local access to parts and improving inventory management.’ The former is arguably purely a matter of logistics, but improving inventory management can be harder to implement successfully without recourse to a specialist in this area.
One such specialist is Syncron, which counts Komatsu and Metso among its mining equipment customers, and its president, Johan Stakeberg, gives an insight into what these customers want, and why. ‘The common denominator for our customers is that their customers put high requirements on them, the OEM, to perform in the aftermarket business. The reason is very simple – downtime is very costly,’ he says.
‘Our customers understand that a high-performing aftermarket business is a prerequisite for a strong competitive position in their industry. It is through this that you build a relationship with your customers, and it is also how you ensure they buy your product next time they invest in new equipment,’ he adds.
Stakeberg says that, although he first started seeing a growth in demand from OEMs for inventory management around 10 years ago, he has noticed a surge in interest recently. Customers often implement these systems on a global basis from the start, he says, although it is not uncommon for them to start in one geographical region and expand from there.
As for the types of mining equipment OEMs are particularly keen to manage, he says, ‘In general, the higher the uptime requirement, the more important it is to make sure spare parts are available close to the end customers. So it is more the criticality of the spare parts that determines the need for an OEM to manage its inventory. However, when an OEM takes responsibility for the inventory and availability for the end-customer, they normally do this for all parts. After all, customer satisfaction is based on the total parts availability,’
Perhaps unsurprisingly, none of the third parties contacted in connection with this article accepted the invitation to comment on Timetric’s findings, and only one OEM – Joy Global – took up the offer of right of reply.
Addressing the issues of availability of spare parts and after-sales service, the company says, ‘We have a network of more than 130 locations that provide access to our parts, service and experts, with a focus on being close to the mines, and we also use technology such as remote health monitoring, to assist in supporting equipment in remote locations.
The company also makes use of computerised inventory systems and forecasting to boost customer relationships. It accepts though that third parties may be more likely to be used for surface mines, saying, ‘Surface mines are more “accessible”, so it is natural that there may be more third parties involved. Recognising this trend, however, we have focused on providing differentiated parts and service through performance-enhancing upgrades, common rebuild procedures and increasing our service capabilities wherever our equipment is in use.’
Joy Global clearly knows its strengths and how to play to them. If the same can be said for the other OEMs in the market then when the mining industry does finally emerge from the downturn these big players will themselves re-emerge – bloodied, perhaps, but unbowed.