Solutions to improve the productivity of vietnam's mining industry from the experience of the world mining industry

Nội dung text: Solutions to improve the productivity of vietnam's mining industry from the experience of the world mining industry

1. SOLUTIONS TO IMPROVE THE PRODUCTIVITY OF VIETNAM'S MINING INDUSTRY FROM THE EXPERIENCE OF THE WORLD MINING INDUSTRY Dr. Tran Thi Thuy Linh linhtran_hn@yahoo.com Faculty of Economics - Management, Thang Long University Abstract In terms of theoretical basis, methods of calculating labor productivity such as labor productivity by value, overall equipment efficiency, factor productivity, and mine productivity index (MPI) are mentioned in an integrated way. On that basis, the study focused on assessing the status of productivity of the mining industry in the US, Australia and some regions in the world according to the mine productivity index method. Finally, the study proposes a solution to improve the productivity of Vietnam's mining industry such as changing thinking in increasing productivity, building an effective human management system and applying appropriate technology. Keywords: Mining, Productivity, Industry 1. Introduction Competition is becoming increasingly fierce in a market economy, enterprises are always trying to find solutions to improve the competitiveness of businesses. One of the strategic solutions is to improve productivity or labor productivity. This is also a general picture of enterprises in the mining industry in Vietnam when facing a sharp decline in the selling price of minerals in the world market. Many solutions to improve productivity have been introduced by mining enterprises such as increasing production and reducing production costs. However, these solutions still seem to be insufficient to help enterprises effectively solve productivity problems. Therefore, based on research on the productivity of the mineral industry in the world, especially the mining industry of Australia, the study proposes some solutions to improve productivity in the Vietnam mining industry. 2. Methodology Currently, many methods have been applied to calculate the productivity of a country, an industry or a business. The author summarizes and presents 4 methods of productivity and labor productivity in the industry / enterprise that have been applied in the mining industry in Vietnam and in the world. 203
2. 2.1. Value based method According to this method, the labor productivity is calculated by sum up the output value of money of all products produced by the enterprise or industry. Hence, labor productivity is calculated by the following formula: W = Q / T Where W: Labor productivity level Q: is the value of total output, value added or revenue + Value of total output is the value of all products produced, including costs and profits + Value added: is the newly created value + Revenue is the value earned after selling products T: employees in enterprises, calculated by day, hour, minute, day-person, person-hour Advantages: This method can be used for different types of products including unfinished products. Overcoming the disadvantages of the method of calculating labor productivity in kind Disadvantage: + Not encouraging saving materials and using cheap supplies. Where more expensive supplies or supplies are used, higher productivity levels will be achieved + Affected by the calculation of total output by the industrial method. If the volume of products cooperates with the outside, the structure of products changes will distort the productivity level of the enterprise itself. + Only used in the case of constituting products that do not change or change little because the composition of products changes will lead to a difference in the level and speed of labor productivity. When changing from low-cost labor products with high value to high-labor-consuming products with low value, labor productivity decreases and vice versa labor productivity increases. Minerals mining and processing companies are often interested in labor productivity, measured by output / quantity of labor, but have not paid much attention to the movement of total materials. The drawback of this measure is that it does not take into account that the output may be affected by geological conditions such as reduced ore levels, investment in machinery or the use of tires and explosives, etc. 204
3. 2.2. Overall Equipment Effectiveness Overall equipment effectiveness (OEE) is calculated based on data on operating and stopping times of machinery. OEE = Device availability (Availability) x Device performance (Performance) x Product quality level (Quality) OEE = A x P x Q Where - A = (Actual machine running time / Scheduled running time) x 100% - P = (Actual capacity / Design capacity) x 100% - Q = (Quantity of quality products / Quantity of products produced) x 100% Studies around the world indicate that the average OEE of manufacturing plants is about 60%. For world-class well-managed factories, OEE must be around 85% or more, with the following components: - A: the readiness of the device needs to reach 90% - P: equipment performance needs to reach 95% - Q: product quality level must reach 99.99% + No defective products + There is no problem stopping the plan + No accidents occurred during operation + Enticing all employees into group activities to voluntarily maintain and improve equipment. Although this method helps us with meaningful values of machinery performance such as availability, operation and speed - but this measure focuses on only one part of the operation. production, not the whole process. 2.3. Total Factor Productivity To overcome the disadvantages of the above two methods of measuring productivity, economists also apply a more effective measurement method which is the total factor productivity (TFP). TFP is a complex indicator that measures the combination of capital, labor, inputs and effective management, so the calculation of TFP will indicate the productivity of all inputs as weak. How much labor, capital, technology and management factors contribute, how much in productivity growth so that we can 205
4. analyze and offer solutions and recommendations to improve efficiency. business production of enterprises. Thus, it can be understood that TFP is an indicator to measure the productivity of both "labor" and "capital" in a specific activity or for the whole economy. TFP reflects the progress of science, technology and technology, whereby the increase in output depends not only on the increase in the quantity of inputs (traditional mode) but also on the quality of the inputs are labor and capital. Accordingly, improving TFP is a measure to increase output by improving the quality of inputs and labor and capital. Along with the same amount of inputs, the output may be larger thanks to improving the quality of labor, capital and effective use of these resources. Therefore, TFP increase is associated with the application of technical advances, technological innovation, improvement of management methods, improving skills and skills of workers Currently, there are many ways of calculating TFP, but it is common to apply it under the Cobb-Douglas production function which is considered technically effective when the output level produced is the maximum that can be obtained from a set combination of given inputs.  Q AK L Where: - Q: output - K: capital - L: labor - A, α, ß: coefficient Based on the research results, Asia Productivity Organization (APO) pointed out that TFP's growth source is mainly based on 5 main factors as follows: i) Labor quality: Labor quality includes educational qualifications related to the ability to absorb and apply scientific and technological advances. Therefore, to improve the quality of labor, enterprises need to focus on; training to improve skills and skills of workers as well as technology transfer training. Investing in human resources increases the ability and capacity of the workforce in producing high quality products and services, which is a very important contributor to the loss of TFP. ii) Changing demand for goods and services: This factor affects TFP through increasing domestic and export demand for products and goods as an important basis for optimal use of resources. 206
5. iii) Capital structure changes: This factor requires businesses to increase investment in advanced technology such as information and communication technology, modern technology and automation. Thus, capital is invested in high- productivity fields, thereby improving the efficiency of the economy. iv) Economic structural change: Economic structural changes related to the allocation of economic development resources between sectors and economic sectors. This leads to more resources being allocated to higher productivity sectors or sectors, thereby contributing to the increase in TFP. v) Application of scientific and technical advances: The application of scientific and technical advances will promote creative and innovative activities; research and develop new products, improve production processes; Advanced management technology (systems, advanced management tools ). This factor includes activities such as innovation, research and development, positive working attitudes, management systems, organizational systems impact to improve productivity. Among the 5 main factors contributing to the increase of TFP as mentioned above, 03 factors are determined to be in the field of science and technology, direct and strong impacts on organizations and enterprises, namely: Pressure use of technical advances; Labor quality and capital structure change. However, for this mineral mining industry, the output is calculated by value added so it does not take into account two important factors that are the impact of changes in geological conditions such as ore levels and price of input goods (usually tends to increase). Mining companies cannot control these two factors, so the calculation of TFP does not fully reflect the performance and productivity. 2.4. MineLens Productivity Index In early 2015, in a study on labor productivity in the world mining industry, experts of McKinsey Consulting Company developed a method to calculate productivity in mineral mining and processing industry according to mine productivity index. (MPI-MineLens Productivity Index) to calculate the world mining industry's productivity, as well as the mining industry of some countries, by eliminating the decline in ore level and input costs (often trending up). According to this yield calculation method, the world mining industry's productivity has decreased by 28% compared to 10 years ago (2004). Experts say that the mining industry needs a method that can help managers know whether the company has been operating effectively and can measure productivity by controllable factors. The factors that companies in the field of mineral mining and processing can control are investment capital, labor, production processes, spending on purchases of goods, services 207
6. and organizational methods. manage. This method of measuring productivity has eliminated the factors affecting productivity such as the fluctuation of ore levels, or further and further exploitation. These are factors that increase production costs. The mine productivity index (MPI) is based on the Cobb-Douglas production function (the production function used to measure the efficiency of the economy). However, when applied to the mining industry, this production function has been adapted to be applicable by using variables such as tangible output, number of employees, net asset value and non-labor costs. The tangible output is measured by the movement of the overall material so the MPI index is not affected by factors such as changes in ore levels, stripping rates or prices of goods. These are the factors that the mining industry cannot control. 3. Current situation of productivity of the mining industry in the world 3.1. The decline in productivity of the mining industry in the world According to the MineLens Productivity Index Report (MineLens Productivity Index - MPI) of McKinsey company announced in early 2015 clearly shows the decline in the ranking of the mining industry's productivity compared to other industries such as umbrella production. Yields, chemicals, Productivity of the world mining industry has decreased by 28% compared to 10 years ago. This can be seen clearly when analyzing the productivity of mining, oil & gas, agriculture and chemical industries in the United States. If taking the labor productivity index in 2009 is 100, the labor productivity index of the US mining industry is only 92.2 in 2016. While this index of oil and gas industry in 2016 is 141.7 (figure 1). 160 140 120 100 80 60 40 20 0 1999 2015 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016 Agriculture, Forestry, and Fishery Oil and Gas Extraction Mining Chemical Products Figure 1: Labor productivity in some industries in USA in period 1987-2016 Source: Bureau of Labor Statistics of USA 208
7. When analyzing the productivity of the world mining industry according to the MPI index, the industry's productivity decreased by 6% / year in the period 2004- 2009 and 0.4% / year in the period of 2010-2013. Thus, the average mining industry in the world has reduced productivity by 3.5% / year in the period 2004-2009. MPI data show that the sector is making some headway: its 2014 to 2016 MPI score is starting to move up from the period of stagnant productivity in the five-year period from 2009 to 2014 (Figure 2). Figure 2: Productivity of the world mining industry is calculated according to the MPI index period 2004-2016 Source: Company Annual Report of McKinsey The main factor leading to the decline in productivity of the world mining industry is that the mining industry has just come out of the price cycle of minerals that have increased by more than 50% for 10 years. Higher mineral prices and increased production lead to mining companies not interested in productivity targets. This means that increasing production costs to increase output to meet demand is not a problem that mining companies care about. The annual average yield decline in the mining industry varies from region to region (figure 3). The North American region experienced the largest decrease in productivity by 4.8% per year during the period 2004-2013, followed by the Sub- 209
8. Saharan Africa, with a rate of 4.5%. The mining industry of Australia is also not out of this trend when the average reduction of 4.2% per year during this period. Figure 3: Labor productivity in the mining sector decreased by regions Source: Company Annual Report of McKinsey 3.2. Productivity in the Australian mining industry Applying MPI index to calculate world mining industry productivity, as well as mining industry of countries such as America, Australia, and mining sectors in regions such as Latin America, North America, Sub-Saharan, Industry research mines of a specific country like Australia will help to be able to better identify the industry's trend of changing productivity. During the period of 2008-2009 when world mineral demand increased, Australia's mining industry contributed 9.8% to the country's gross domestic product (GDP). In the early 2000s, the Australian mining industry, as well as those of other countries, did not face an effective decline as China's demand for minerals increased, causing prices to rise artificially. However, this growth cannot be sustained and then the demand for minerals has fallen rapidly worldwide, making the Australian mining industry lose billions of US dollars. 210
9. Australia is assessed to have a developed mining industry and a major contribution to GDP. Australia's mining industry ranks third in the world in terms of revenue and has a high growth rate during the booming mineral prices. In the early 2000s, the Australian mining industry accounted for about 5% of GDP. However, during the period of high mineral prices, this rate increased to 9.8% in 2008, 2009. When applying the MPI index for the Australian mineral industry, the yield only reached the highest score of 104 points. in 2007, it was only 88 points in 2013, ranked second in terms of low productivity in the world. Rising mineral prices in this period led to a rapid increase in the value of output. However, the volume of output does not increase corresponding to the value. Therefore, when applying the MPI index to calculate the productivity of the Australian mining industry, in the period 2008-2010, the productivity decreased by 2.5% / year. Factors that reduce productivity are the cost of borrowing increased by 49% and the operating cost increased by 11%. In addition, investment projects in the mining industry need time to go into operation, leading to an increase in loans that do not correspond to output. Demand for minerals declined in the global market since 2011, leading to a sharp fall in the prices of minerals that have caused difficulties for the Australian mining industry. To cope with this problem, mining companies have implemented many measures such as cutting production costs, reducing borrowing costs, reducing investments, preserving cash flow and balancing balance sheets. The math has been imbalanced from procurement and implementation of inefficient investment projects. Thanks to the effective and resolute application of these solutions, through analysis of the MPI index, the Australian mining industry's productivity began to increase steadily from 2010 to 2013 at the rate of 0.2% per year when the companies increased cost and loan cuts. The ratio of capital decreased significantly from 49% / year in the period of 2008-2010 to 6% / year and operating costs decreased from 11% to 6% in the period of 2010-2013. Meanwhile, the number of employees increased from 5% to 26% and material costs increased from 5% to 7%. However, this period increased by 7% / year compared to 5% / year in the period of 2008-2010 when investment projects started to operate (Figure 4). 211
10. Figure 4: Factors affecting the productivity of the Australian mining industry in the 2008-2013 period Source: McKinsey Company Annual Report Note: - Data based on coal, copper, gold, iron, lead, nickel, and zinc minerals. The increase in coal mining costs is considered to represent the entire Australian mining industry. The capital cost of the 50 largest mining companies is considered to represent the entire Australian mining industry. - Number of employees converted to full-time work 4. Solutions to improve productivity in mineral exploitation in Vietnam The mining industry enterprises, including mineral exploitation enterprises in Vietnam use measures to increase productivity by reducing production costs and increasing output but do not care about exactly how rationalization of key solutions to improve productivity. In the current mining industry, productivity decreases when mining operations are expanded rapidly to scale, thus leading to difficulties in managing and operating large and complex companies. Besides, it is a problem of high mining companies' turnover but lacking experienced staff in improving production efficiency. Through practical research in the mining industry in Vietnam, as well as referring to the mining industry experience in the world, besides the traditional 212
11. solutions that domestic enterprises are applying to increase productivity is to cut down. cost and increase in output, companies need to implement some solutions as follows: Firstly, it is necessary to change thinking in increasing productivity, not just about reducing costs and increasing output. When mineral resources can be easily exploited, a new approach is needed to improve productivity. Mining companies not only implement solutions related to reducing costs and increasing output, but also need to apply the latest solutions in innovation of production and business activities. Companies cannot just implement single solutions but need to apply comprehensive solutions to transform their business operations. That is to ensure that each stage of the production process is optimized but not only improved at one stage but throughout the system. Secondly: need to build effective management system and talented people Human factor is very important. Labor productivity is a matter of executives, so they need to be talented people to direct and lead the innovation process from the beginning to the end. Improving efficiency in contract management is one of the key factors to improve productivity. One of the effective solutions to increase productivity but often not interested in it is managing contractors. Thirdly, it is necessary to apply appropriate technology in the mining industry Currently, the 4th industrial revolution has helped enterprises in the mining industry improve production efficiency in many stages of the mining process. However, when to apply, how to apply, when to apply it needs to be studied and evaluated carefully to avoid inefficient investment. Automation in mining and processing is considered an important element of the mining industry. However, it is not a curative remedy for productivity problems. The huge amount of information can help motivate, make management decisions more accurately thanks to more detailed information but it cannot solve all problems. However, in reality it is not so because many businesses have applied automation, but labor productivity has not improved much. Therefore, solutions to technological innovation must be implemented appropriately depending on the actual conditions of each enterprise, depending on natural conditions and especially human resources. 5. Conclusion The mining industry in Vietnam, as well as other countries in the world, is having problems with productivity decline. Facing this challenge, businesses have quickly launched a series of effective solutions such as restructuring the organization and 213
12. management model; improve cost management, human resource management; Application of science and technology in production Over the past time, the synchronous solutions mentioned above have proved effective in improving the productivity of Vietnamese mineral mining enterprises. However, the solutions proposed by the article may be meaningful suggestions for enterprises in this sector of Vietnam to increase productivity to improve product competitiveness and price. quality. 6. References 1. Decision No. 712 / QD-TTg dated 21/5/2010 of the Prime Minister, approving the National Program "Improving productivity and quality of goods products of Vietnamese enterprises by 2020" 2. Vietnam National Coal-Minerals Corp, (2016) Sustainable development strategy of the group of Vietnamese Coal-Mineral Companies In the year 2020 and vision to 2030 3. insights/productivity-in-mining-operations-reversing-the-downward-trend 1. growth-survey-report-pdf-5-1mb/ 4. 5. 2. nk_g97814051006636_ss1-12 214