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Case study of nickel smelter: Profit bolstered during hard times

Increasing output and cutting costs yields $45 million payback

Abstract

It started out as a straightforward challenge: A nickel smelter in northern Ontario had to cut costs to cope with worldwide pressures on nickel prices. Its goal was to reduce the weighted average cost to produce a pound of nickel and copper by 20 cents to $1.30.

The smelter’s general manager asked Deloitte consultant Yvan Levesque for help. Levesque had three options: cut costs, increase production from its existing asset base (which would reduce overall unit costs), or do both. Levesque opted for the two-pronged approach. But while his Montreal-based team was working on plans to cut costs in various areas of the plant, the assignment suddenly became more complicated — the smelter was hit by a workers’ strike.

Finding the silver lining Levesque saw a terrific opportunity to improve productivity in the plant. After all, management was now running the plant at 65-70 percent capacity, with roughly one-quarter of the manpower. Levesque and his team moved in to document and reconfigure the work while management ran the show. “Companies don’t normally think of a strike as an opportunity,” says Levesque.

Reconfiguring operations saves $10 million Levesque's team moved into the smelter, living there five days a week, 24 hours a day and sleeping on mattresses. They studied and documented the work in various parts of the smelter to determine how it could run with fewer staff on a sustainable basis. They analyzed the backlog, and the critical activities required to maintain each major piece of equipment. They figured out what the plant needed after the strike — the appropriate skill sets, job descriptions, the metrics to judge performance — and recommended the work itself be re-configured.

The team employed the same approach in other areas of the smelter, with impressive results: An overall cost saving of $10 million per year. “Four to five years later, they are running that place like a Swiss watch,” says Levesque, who receives monthly operating highlights from the facility’s new general manager.

Increasing output improves profit margin by $30 million Cutting costs was not the only way to achieve the $1.30 plan. Levesque’s group also worked on a plan to process more material with the same asset and fixed cost base to cut the per-unit cost of nickel. The team demonstrated the roaster furnace output could increase on a consistent basis from 30-32 tonnes per hour of material to 35-37 tonnes. The challenge was to do it consistently.

A rigorous problem-solving analysis was undertaken — job identification, data collection, analysis, options, solution development, trials, and management of problems on a day-to-day basis. The company made the changes and its profit margin increased by 15%, about $30 million per year.

Hands-on approach key to success It helped to be on site. “We’re constantly on the floor, working with front line management and supervision, learning the business hands-on,” says Levesque.

Moving beyond symptoms to deal with the root cause of a problem brings the solution into focus. To do this, Levesque employs the Socratic method: “Our job is to probe beyond the obvious questions and answers.” Then mobilizing people within the organization to make change brings it all together. “We help people to see the art of the possible and the magnitude of change that can be implemented.”

 

What should you look for in your manufacturing process?

How well are you using your capital? Is your plant starved of capital? Are you running your equipment into the ground?

Can you increase your potential capacity? What can you do to increase the output of goods from your existing asset base?

How much money do you spend on logistics? How much inventory are you carrying? What are the impacts on your operation of poor logistics and process?

What about your organization? What’s the calibre of the people in place? Do they need more training and education?

Are you measuring the right things to judge the performance of your business?

Is poor housekeeping getting in the way? Are you losing time and money in accidents?

Challenge

                   

Approach

                                                     

Solution