How To Succeed In The Mining Services Industry
This is the first of a four part series that looks at Australia’s core industries – Mining Services, Transport, Retail and Manufacturing.
We all know that the next few months will be “difficult” for most businesses, but what will the impact be on Australia’s core industries, and what can SMEs in these industries do to strengthen their position?
In this blog I’m going to focus on the Mining Services industry. I’ve worked with both resources “giants” and the smaller businesses that support them, and the drive and tenacity of those smaller businesses is commendable to say the least.
With the exception of the larger players (Leighton, Downer EDI and Macmahon) the mining services sector tends to stay out of the limelight. This is despite the sector accounting for around 0.3% of GDP, generating approximately $7 billion during the 2009/10 financial year and employing more than 15,000 people.
There are more than 90 SMEs in the mining services sector so competition is high and focuses heavily on standard of service as well as price, which allows SMEs to compete for blue chip projects.
Despite the much publicised resurgence of the mining industry, it’s likely that the mining services sector will encounter continued volatility in the short term, with the impact of GFC resultant scale-back and withdrawals still being felt on some projects, while activity cautiously increases on others.
Access to growth capital will also plague many SMEs, as financiers channel available funds towards those businesses which can demonstrate a lower risk profile than their peers.
Strategic planning for mining services industry
As a business owner or manager of an SME in the mining services sector, what can you do? Success in this environment will depend on a business’ ability to react quickly to market changes. This can be achieved by focusing on key success factors such as:
- A strong balance sheet – A business’ ability to absorb operational shocks or interuptions is directly related to its balance sheet, so it’s important to increase management’s focus on working capital, asset utilisation and gearing levels.
- Effective forecasting – Implementation of a rolling 13 week cash flow forecast can assist in assessing a business’ ability to generate cash to fund working capital requirements, acquisition or expansion plans and to achieve steady growth without over-trading.
- Cost efficiency – The sector’s benchmark cost structure is illustrated below. Monitoring key costs through KPIs and performance dashboards will enable timely identification of negative trends.
- Highly skilled workforce – Highly skilled workers are attracted to businesses with a solid and positive operational history.
- Positive industrial relations – Employee issues have the ability to impact core activities, general costs and business reputation. These issues should be monitored closely.
- Customer diversity – Customer concentration risk is a significant issue for SMEs in this sector, and can be mitigated by actively pursuing a diverse customer base.
- Contract term – Long term contracts are generally more cost efficient and provide a sense of stability and security to employees.
Happy strategic planning, and stay tuned for my next blog in this four part series, where I’ll examine the transport industry.
Elizabeth Mawby was a former Client Director at Vantage Performance, one of Australia’s leading turnaround management and profit improvement firms – solving complex problems for businesses experiencing major change.