Saturday 22nd Feb, 2020

The only thing harder than selling bulk handling solutions…

Grant Wellwood, General Manager for Jenike and Johanson, provides insight on the processes big companies go through when it comes to purchasing major bulk handling solutions.

Grant Wellwood, General Manager for Jenike and Johanson, provides insight on the processes big companies go through when it comes to purchasing major bulk handling solutions.

We often hear CEOs lamenting the impact of ‘latent capacity’ on their businesses. As many of us are frequent visitor to their operating sites, we understand this frustration firsthand, especially as much of this productivity loss is bulk solids handling related. In most cases the problems can be attributable to baked-in design problems, to which we have proven solutions, often with payback measured in days. Yet despite this matchup, it can be hard to get traction which then creates frustration on the solution provider side as well. So, what’s going on?

If you are selling solutions to address flow problems in existing operations, what you are really selling is change, the one thing large organisations (especially mining houses) are geared to resist from all perspectives (personal risk aversion, team performance and shareholder obligation). While there is no recipe for success, the following insights may help you understand the dynamics, which is always a useful first step to devising your own pathway.

What’s in it for me?

Once you can see an opportunity for a long-term solution, the first challenge is to convince someone that they actually have a problem worth solving. As irrational as it seems to outsiders, the comprehension gap between the C-Suite where the productivity pain is felt, and operations, where the root causes of ‘latent capacity’ are lived out every day, can be vast.

Baked-in bulk flow problems first show up during commissioning, and after they have been conceded as ‘intractable’, operations takes control of the plant as it is. Commissioning has typically been extended (while they try and fix the baked-in faults). Once it is finally handed over, the focus is firmly fixed on revenue generation, as opposed to improvement.

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As the operation’s output is ramped up and its materials handling system is put under load, additional flow issues can emerge. Most operations fail to reach their nameplate capacity, and once the operation’s throughput has plateaued out, its plant performance is usually baselined. All the inherent design problems and performance manifestations are normalised and simply accepted from that point on as ‘just the way things are around here’.

Employees in large organisations seldom get into trouble for maintaining or defending the status quo, which is more than can be said for brave souls who make a conscious choice to deviate from the default option and then fail to deliver. Unlike credit, blame always finds a home.

So, if I inherit responsibility for a value chain with baked-in flow problems, what’s in it for me? Change is uncertain, costly, disruptive and bulk solids flow is a notoriously risky area with unexpected consequences if it is not considered as a system. In this dynamic, the best option for an individual employee is to maintain the status quo until it becomes a burning platform for the business, in which case the drive for change and hence risk will be coming from elsewhere.

If you can convince someone to champion your change agenda, the next thing you will encounter is the question of funding. Even if your solution has a ridiculously short payback, it is likely to have a customisation/implementation cost and resource requirement, meaning it needs to be in plan. These plans normally operate on an annual cycle, so depending on the timing of your pitch, it could be up to 12 months until your project has approved (but not guaranteed) funding. Even when they are in plan, the funds earmarked for a project to deliver your solution will be tested to confirm that the spend is absolutely necessary and that it is the best overall corporate investment option at that time, before it is finally allocated.

As an aside, while out-of-plan funding is possible in theory, it is only for the bravest souls as it involves extra scrutiny and you are really pinning your future on the success of the change. Regardless of the outcome just requesting out of plan funding can cast competency doubts as it raises the question of why it isn’t in plan already. (bad planning? reactive/impulsive? hidden agenda?)

Suppose you have a champion and they have been successful in getting support and funding for your solution in the financial year prior. Congratulations, but you have only made it to solution-delivery base camp, with the real summit now revealed dauntingly ahead of you.

Going from ‘me’ to ‘we’ – Buying by Committee

As if the first two hurdles weren’t imposing enough, the days when there was a single decision maker who could sign off on your proposal have long gone. This is particularly true of bulk solids handling solutions as they tend to cut across so many functions and sit right on the organisation’s revenue lifeline, its value chain. The adage ‘companies don’t do deals, people do,’ still holds true, it’s just that you will be dealing with an incidental buying committee in order to cover all the touch points and dimensions of the proposed change. Purchase of complex solutions is usually such a rare organisational occurrence that the process involved tends to be bespoke, evolving in an organic and non-linear fashion.

Each organisation/solution combination will have its own unique cast of characters, who all need to sign-off on your deal on behalf of their function, but some common roles are as follows:

Innovation: The champions of process change, the corporate face of complex solution considerations and the high-level custodians of the production value chain. This function constantly works with risk and uncertainty, and by definition have a mandate for continuous improvement and change.

Its purpose is to convert knowledge into profit, often via the customisation and the delivery of complex solutions like yours.

With a specific technology and delivery execution focus, some of the aspects of your complex solution proposal of interest to this function include:

• Is this problem worth solving (in absolute and relative terms)?

• Is this the best technical solution to the problem? What is the Best Demonstrated Alternative Technology (BDAT)?

• Has the problem been properly framed?

• What does success look like (what are the testable success criteria)?

• Do we have the resources and skills to deliver this? If not, can we acquire them?

• Is the value proposition realistic in our context (using our cost and financial parameters) and is it a compelling option?

•Is the proposed solution futureproof?

• What is the ratio of assumptions to facts?

• Are they the best in the world? What exactly is their entitlement?

• What are the chances they will embarrass us?

• Are there any unanticipated risks to the operations?

• Does this option include proven project management capability?

• Is the proposed project plan well considered? Does it cover:

• Communication and reporting?

• Risk management?

• Specification?

• Factory and site acceptance testing?

• Setting criteria of issue of the certificate of completion?

• Is this a case of sole source supply? If so, on what basis, and if not, who else could supply a like solution and what criteria should procurement use to test them?

• Will it be expensive to deal with them (e.g. overseas travel costs)?

• Is this a ‘first’ application of the solution? If not, is there a reference facility? If so, can we visit and speak to the operators?

• How much customisation is required? Do they have expertise in this area to customise a solution for us?

• What are the greenhouse gas implications of this proposed change for our business?

• Do they understand our business and the demands of our operating sites?

Operations and maintenance: While not always the case, the most progressive organisations offer the ultimate customers of your solution a seat at the table. As the ones who often called for change, and the ones to inherit your solution, they have a very important role to play and will be interested in pragmatic issues like:

• Will it make our lives easier?

• What is the basis of safety?

• Will we be given proper training?

• Is it robust enough for mining operations?

• Can we see it operating somewhere else and speak to its operators and maintainers?

• Does it comply with our site standards?

•Are there any operating procedures and if so, are they well written?

While this cohort can appear to be taking a backseat in the purchase process, don’t be fooled as they are one of the keys to your success. Dealings with this group, your real customers, go much smoother if they are pulling for a change and championing you as the provider. Get in early and definitely don’t ignore them even though they don’t seem to have the reins of power in the transaction.

Finance: The finance function is all about keeping the balance sheet in the black and minimising financial risk. The high-level focus is the financial supply chain and ensuring there is enough cash flow to keep the business operating.

In relation to complex solutions, the role of the finance department typically relates to the quality of the value proposition, its position with respect to investment hurdles and its risked ranking and recommendations in relation to the alternatives. Aspects of complex solution proposals of interest typically include:

• Are the funds for this project in plan for the current year?

• Does this project pass the organisation’s prevailing investment hurdles?

• On a risk-adjusted basis, is this the best investment option we have right now?

• Is the value proposition realistic?

• Is the Net Present Value (NPV) absolute (with respect to doing nothing) or differential (with respect to the BDAT)?

• Do we need to spend money now? Can we defer any of this cost to the future?

• What are the cash flow implications over the life of the project? Are the financial terms acceptable?

• What is its accounting definition (capital improvement, sustaining capital in the face of changing feed)?

• Are there any taxation/research breaks available? If so, what do we need to do to be in a position to claim?

Mining operations are essentially money-making machines. Your solution represents a modification to its workings, so finance team approval can be the most difficult to get, even with enthusiastic recommendations from the proponent and rest of the buying committee. Larger or more disruptive purchases often need personal approval from the Chief Financial Officer. They expect to see a comprehensive proposal detailing the expected total value received, the investment required, and comparisons with BDAT and the do-nothing cases. Financial metrics such as NPV and internal rate of return, as well as the sensitivity of the same to the input assumptions, may also be required. The option can be put to the board or capital approval committee in the form of a capital appropriation request.

Procurement: If the finance function is all about keeping the balance sheet in the black, and minimising financial risk, procurement is about spending the allocated money wisely.

Focused on increasing shareholder value by exercising procurement expertise and leveraging group scale, the procurement function are the supply gatekeepers who ensure purchases comply with governance, procedural fairness and best value requirements.

Matters of interest to the procurement team include:

• Alignment of proposals with the organisation’s core values and business objectives

• Financial security of the supplier

• The trade-off between price and value

• Role in the supply chain (are they a direct manufacturer of goods, or an authorised agent/distributor?)

• Ease of doing business

• Availability of competent personnel to support the goods and/or services supplied

• Maintenance of appropriate health and safety and quality assurance systems and processes

• Amenability to trade on the basis of the organisation’s standard terms and conditions

• Policies that support fair competition and integrity, require adherence to applicable laws, standards and regulations and prohibit giving or receiving bribes, with a process for ensuring compliance.

Provided all these foundation requirements are satisfied, the actual supply of the solution is usually tested competitively and awarded on the basis of a weighted score of the following criteria:

• Are they technically compliant with all the bidding requirements?

• Do they satisfy the internal customer’s stated needs and required standards?

• Do they meet the values articulated in organisation’s business conduct?

• Are service contracts (capability, terms) favourable?

The recommended solution purchase option then usually goes to the legal team for a once over from their unique perspective before the project is given an identity in the accounting system and the successful supplier is issued with a purchase order.

Legal/Intellectual Property (IP): The role of this specialised functional group is to make sure the proposed deal is legally compliant, covers all eventualities and that any commercial advantage that may arise is enjoyed to the maximum and protected as far as possible from fast followers and competitors. They sometimes come in early to set flags for the procurement team but more typically come in during the competitive test. The aspects of interest include:

• Are all the parties involved working on like terms and covered by suitable agreements?

• Is the supplier in a position to guarantee the freedom to operate in all jurisdictions where we may want to use it?

• Is there likely to be any new IP generated as a result of customising a complex solution? If so, can we own or control it or at least have free use?

• If there are requests to change our standard terms and conditions can we accept them and/or trade them off for valuable concessions elsewhere?

The new IP ownership clause in a schedule of standard terms and conditions is often the most contentious and can bog your deal down or even result in it being rejected, but you can prepare for it. The situation goes like this:

Customer’s perspective: The implementation of this generic solution in our operation will involve solving many problems. Every time a problem is solved, a new IP is generated. As we are paying for commercial rates for this work, we should own it. We don’t want to pay for suppliers to learn and/or give our competitors a free kick.

Supplier’s perspective: Customisation is a standard part of the solution implementation process and we want to capture and incorporate these learnings while retaining our freedom to operate. These learnings are only possible off the back of our background IP and have no value without it, so they belong to us.

Possible compromise: Grant the customer a perpetual royalty-free licence to use any project IP generated, but only in their own operations. You should also seek to extend this to future project IP, as there could be additional improvements once your solution clocks up some run-time.

Information Technology (IT):

Last, but definitely not least, is the IT team, custodians of the organisation’s digital circulation system. Nearly every complex solution (even bulk solids handling ones) involves software, hardware and connection to the organisations existing IT infrastructure. They have an important role to play ensuring any new solutions are compatible with the organisation’s current and future IT infrastructure. Consider the following questions:

  Is the software compatible and who will maintain it?

•Will it be expensive/difficult to support?

• Do they offer remote support?

•What does the hardware landscape look like?

•Will this solution architecture fit in with our existing IT system?

•Does it represent a security threat to our existing IT infrastructure?

•Do we have the hardware and know-how to support it?

•If it has sensors, who sees/owns the data generated?

• Is it future proof?

While the functions that comprise the buying committee members all have the same corporate goal and something unique to contribute, the resulting purchase process can be dogged by functional conflicts rooted in struggles for power, resources and budgets. Each group involved will feel compelled to make a material contribution (even if it is not needed) in order to help justify their existence. Compounding this ‘busy work’ impact further is the fact that many organisations seldom deal with complex solution purchases so are not set up to streamline the purchase process. One of the challenges here is role clarity as some of these functions have overlapping capabilities that can lead to demarcation disputes.

In addition, while many solutions need support functions, they are not staffed for complex solutions. As illustrated, considering complex solutions requires a lot of extra effort on the part of many corporate functions and from individuals who did not have it in their annual plans. As a result, your proposal can remain ‘under active consideration’ for months, waiting to get input from key resources and caught between the gaps in a sort of no man’s land.

Left to their own devices, these functions typically regress to their lowest common denominators, the things they all agree on which are to avoid risk, move cautiously, reduce disruption, and save money. Given they already have a status-quo solution that is most probably ‘good enough’, the final ‘decision’ is often no change, no deal.

‘Success has many fathers, but failure has but one’

On most occasions, all the functions involved will be trying to manage their risk exposure and hedge their bets around this idiom.

If it is a screaming success, all the functions will want to be seen as fathers with the bragging rights to say how they ‘picked this winner early’ and went above and beyond, cutting through the corporate red tape with their machete in order to make it happen.

Conversely, if it is deemed a failure, they want to be in a position to say how they ‘always harboured reservations’ and despite raising them on numerous occasions were forced to be reluctant participants. In summary, what often matters more to corporate decision makers is not the outcome itself, rather the ability to defend their decision whatever the outcome might be.

Engineering the corporate memory to keep both options open is a difficult balancing act but awareness of this dynamic helps explain some of the contradictory behaviour and back-flips you experience during the decision-making stage.

So…what can we do?

Granted, this is a pretty grim picture but complex solution deals are still getting done, so what is the secret? The science of business is a discredited concept so there is no recipe for success, but you may find some of the following points useful as you deal with the new purchasing dynamic:

•Don’t focus on your solution, you need to convince people that they have a problem and that they may have overlooked something. Lead to your solution not with it.

•Get grass-roots support from your ultimate customer – the host operation.

•Seek out suggestions and ideas you can incorporate into the customisation proposal that will improve performance but more importantly increase ownership and the pull for change,

•Be honest with the risks as well as the rewards. All change involves risk so glossing over it and presenting an unbalanced picture erodes credibility and trust. The benefit of being honest is that the mitigations are something that can be attributed to the buyer increasing ownership for the final solution.

•Offer a vivid and compelling vision of the future that people can get excited about and champion to their colleagues.

Conclusion: Designing for bulk solids flow is a common design oversight. It features prominently in many complex solutions pitched at addressing the serious issue of latent capacity. While such solutions are still being purchased, the techniques of the past centred around identifying and wooing a single senior decision maker are no longer valid. Defending the status-quo and deferring to the default choice is usually an inferior outcome for a business with latent capacity. However, it feels like a decision and insures those involved (and their functional department) against a catastrophically bad outcome. This is a recognised cognitive bias called ‘Defensive Decision-Making’. It is not possible to be prescriptive about the best sales approach to take, however, having some insight into the buying side process helps you understand what is going on and why their task is much harder than yours. If you are on the buying side, I share your frustration and pain.