Inefficiencies in Service Procurement in Mongolian Mining Industry Research

One of the main powers of the Mongolian economy is the mining sector. If we want to improve the Mongolian economy further, it is conspicuous to make additional researches on the mining sector and find where it needs more improvement. The purpose of this study is to call attention to the inefficiency of the service procurement cycle time in the Mongolian mining sector by taking as an example one of Mongolian few, the biggest companies “Oyu Tolgoi”, and find out the cause of inefficiency, and propose a possible solution to solve it.

EXCLUSIVE SUMMARY

Service ineffectiveness of procurement cycle time in the Mongolian mining sector is causing varies of problems in company.

This research paper describes possible problems can be faced due to inefficiency in the supply chain period and proposes a solution for it.

The ineptitude of a procurement cycle time will be evaluated by Kanban calculation methodology and the results of representatives will be compared. Accordingly, the suitable solutions will be presented.

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THE QUESTION OF THE RESEARCH

Why the service procurement cycle time in Mongolian especially in the mining sector is inefficient in comparison to other sectors?

THE OBJECTIVE OF THE RESEARCH

To identify the main factors why Mongolian service procurement cycle period of the mining sector is inefficient.

MOTIVATION

Mongolia is a rich country with mineral resources including gold, coal, copper etc. There is a statistic says that Mongolia has enormous mineral reserves, nevertheless, only 15% of the land has been properly mapped (The Economic Overview, 2018).

Around 2010, Mongolian economy started to significantly improve as a result of direct foreign investments which were mostly in the mining sector (The Economic Overview, 2018). As an example, in 2009, one of the main investments was signed. It was a contribution on a project to develop Oyu Tolgoi mine (The Economy of Mongolia, 2018). Oyu Tolgoi is one of the biggest copper-gold reserves in the world which is still under development. It has the projection that when Oyu Tolgoi reaches its full production, there will be produced more than 0.6 million tons of copper, 20.3 tons of gold and 93.8 tons of silver per annum (The Economic Overview, 2018).

Oyu Tolgoi conducts its services and activities by renting (procuring) and purchasing other specialized companies and specialized services, and it mostly takes from 1 to 3 months of the period to conduct just an agreement on cooperation (on procurement) (Procurment, 2018). Accordingly, the service supply chain is the initial part of the company for maintaining its’ overall decent performance. Though, due to possible few reasons such as overall strategic planning, procurement planning, and company structure etc. the service's procurement period (cycle time) takes an unnecessarily long period of time.

Procurement cycle time is a number of stages which have to be taken to replenish stock or purchase a new product. To detect and classify what product needs to be procured, and determine its quantity is the first step. According to this information, the request for procurement department gets engendered. Hereafter, assigned buyers request the bids to a vendor. Once the company receives the ordered products, they are gets registered in the company’s procurement system (Procurement cycle time, 2018). In Picture 1, the main milestones of procurement purchasing are shown.

This study is essential for mining industry of Mongolia because it will help to find out the reason why service supply chain is ineffective. In point of fact, it can be applied not only to service procurement but overall to every service procurement cycle time. Moreover, this literature review will propose a possible solution to the problem.

THE HYPOTHESIS OF THE RESEARCH

The reason why service supply chain in the Mongolian mining sector is ineffective is due to misguided company’s structure, planning, and marketing.

REVIEW OF LITERATURE

Service procurement not only in the mining sector but overall in many other areas haven’t been explored very well, yet Weihua Liu, Enze Bai, Liwei Liu and Wanying Wei (2016) performed a study by analyzing sustainable supply chain from 2006 to 2015 which was based on the triple bottom line (TBL). In the study, the researchers have introduced and compared traditional manufacturing procurement and the service supply chain. They found that few factors such as service industry, customer influence, immeasurability, and labor intensity can affect the service supply chain implementation. Furthermore, these researchers examined three types of sustainable service supply chain’s frameworks. They have concluded the research by proposing the different framework of the sustainable service supply chain. It differed from previous ones by suggesting as suppliers, integrators, and consumers are interrelated, and only according to risk control and performance management viewpoint, need to make the service supply chain management framework (Weihua Liu, 2016).

This raises a question as if the inefficiency of service procurement cycle time in Mongolian mining sector actually can be improved by changing the company’s structure and planning.

To be an effective and topmost performed company, administrators certainly need to focus on procurement cycle time. The cycle time leads to an effective procurement, and it will result in cost-effectiveness (Stroud, 2014). Andrea Stroud has performed research on how to accomplish top performance by reducing procurement supply chain period. For analyzing the literature paper, the researcher used APQCs was performed on eligible 514 standards benchmarking, accordingly, the organizations' key performances were indicated. There were found out that top 10 organizations had high KPIs. APQC measures how top-ranking companies performed in contradiction with other companies on their datasets of the cycle time measurements such as a period of time in hours for putting the orders in the purchase, leads time on acquired supplies of usual suppliers, and procure-to-pay cycle time in days. Moreover, the researcher found out that in order to achieve long-lasting and sustainable cost reduction, the company has to pay attention on how to decrease service and goods’ procurement cycle time. As well, the cycle time of these processes’ provides critical information for organization’s procurement efficiency (Stroud, 2014).

A researcher Eliška Hanauerová made a study on public procurement in the regional bus transportation and assessed its technical efficiency rates of the tenders undertaken. In order to estimate the efficiency rate, Eliška Hanauerová firstly classified the factors affected the end price offered by participants of tender, and the factors were: range of services, the number of the vehicle, the annual mileage, and the average number of seats. As a result, there was not found a direct correlation between efficiency rate and final price. However, the research mentioned that most of the contracts were signed by the new but efficient company which enables them to enter the market (EliškaHanauerová, 2018).

This research paper suggests that procurement cycle time can be affected not only by company’s structure, planning, and marketing but also by bid’s efficiency. However, in our research, we have not done a study on bid’s efficiency, and it would be our research paper’s drawback.

In conclusion, the literature papers have shown that by reducing the service procurement cycle time actually can dramatically increase the company’s performance and efficiency. Thus, it leads to our research's hypothesis which proposed that service procurement cycle time indeed can be caused by a company's mistaken structure or planning. Nonetheless, the other research paper has shown that except than company structure and planning, the bid efficiency also can influence the supply chain period.

METHOD

In order to estimate procurement performance depending on a company can be used many different calculations such as procurement cycle time, vendor performance, spend under management, cost saving, the percentage of POs that are catalog-based etc. (Khalife, 2018). According to Tomas and Hult (1997) reduction in procurement cycle time is directly related with upgraded enactment, quality, and customer satisfaction.

The cycle time is an overall elapsed period of time when work/order started to be “in progress” until it considered as finished, and generally, it measured by days (Pavel, 2018). One of the simplest ways to calculate cycle time is Kanban calculation, and the formula for this calculation is in the following (Vacanti, 2016):

Cycle Time = End Date – Start Date + 1

To answer the proposed research question, the quantitative study would be the most suitable to find the answer and solution. The procurement cycle time of “Oyu Tolgoi” LLC one of the biggest representatives of the Mongolian mining sector, and “Rio Tinto” one of the leading global mining groups will be compared with each other, and in order to compare we will be using a Kanban calculation method. In addition, with the intention to make a clarification if the company’s structure and planning are efficient, there will be taken a survey from employee to assess their satisfaction and overall workload.